Most of us often resort to borrowing money at some point, no matter how hard we strive to live a cash-only lifestyle. Maybe it’s for college education, car, new home, home improvement project, or financing start-up business.
Whatever your reasons are, Quick Loans can provide you with a range of loans to meet your financial needs. The products generally fall under secured and unsecured loan categories.
This post will not only highlight the difference between these loan options but also the advantages and drawbacks of each.
Secured loans explained
A secured loan is a type of loan that requires collateral backing. It gets tied to an asset or property, such as your land, home, or car. Collateral protects the lender against potential loss in case you default.
Suppose you fail to pay back the loan according to set the terms and conditions of your loan agreement. The lender can repossess and sell your asset to cover the unpaid amount.
Advantages of Secured Loans
- You can qualify for larger loans.
- You enjoy better interest rates because you’re considered a low-risk borrower.
- Lenders may allow you to spread payments over a long period.
Disadvantages of Secured Loans
- You risk losing your asset unless the loan gets fully repaid.
- Having a long-term debt can also mean being committed to repaying the loan for an extended period.
Unsecured loan explained
With unsecured loans, you do not need to provide any form of security. Meaning, the lender cannot repossess or sell your assets if you default on your loan.
However, the lender will assess your creditworthiness first before issuing a personal loan. Therefore, you might have to provide proof of steady income, employment, credit history, and more. And while unsecured debts have no collateral, lenders can still recover their money through legal means.
Advantages of Unsecured Loans
- You can qualify for a loan even if you don’t have a property to use as collateral. In other words, you won’t be worrying about losing your assets to the lenders.
- The loan application process is typically quick, and it is easier to get approved for smaller loans.
Disadvantages of Unsecured Loans
- Lenders usually charge higher interest rates, as they face an increased risk of not recovering their money.
- Lenders often offer low borrowing limits with shorter repayment terms.
- The borrower is personally liable.
Secured vs unsecured: Which loan option should you choose?
The decision essentially comes down to your goals and personal circumstances. Suppose you’ve built a stellar credit rating, and you’re looking for a fast personal loan that you’ll use for many purposes. In this case, an unsecured personal loan can be a good option.
If you want a loan for specific big life expenses, you may want to consider a secured personal loan if you have a property to put up as surety and a source of income to honour your loan obligations.
Whatever type of personal loan you need in New Zealand, Quick Loans can help. We offer easy, fast loans with some of the most competitive rates. With us, everything is done online!
Get started on your personal loan today! Call us on 0800 200 275 or simply apply online.