If you’re looking to start a business or do anything else that takes a lot of capital, then you may be trying to make sense of the various loan options that are available to you. One of the most common toss-ups people run into is whether to take out a secured or unsecured loan. These are two very different choices, and it’s important to know all the nuances of each one before making a decision. Here, we’ll look at the pros and cons of secured and unsecured loans.
A secured loan, sometimes known as a homeowner loan, is basically a loan that’s backed up by the equity of your property. This is the crux of the main pro of secured loans: they can get pretty big! Compared to unsecured or personal loans, you can borrow much larger amounts through a secured loan, because they’re “secured” against your home. the creditor has less to lose if you can’t pay them back. Another big advantage is that they’re more accessible to people who have poor credit histories. With the property as insurance, your credit score won’t mean nearly as much as it does with unsecured loans. Furthermore, the repayment periods on secured loans are generally longer, making it much easier for people to manage their repayment plans. There’s only one real issue tied to secured loans; if you fail to keep up with the payments, you could lose your home. You could also risk paying over the odds, as there may be pesky early repayment penalties and other fees. As with any kind of loan, it’s extremely important to make sure you read and understand all the terms and conditions.
An unsecured, or personal loan, don’t require you to put down property as security. Instead, they’re available to pretty much anyone who has a good enough credit score. Immediately, we see a big pro. You don’t need to own property to apply and qualify for one of these loans, making them much cheaper and easier than secured loans. Compared to secured loans, you’re also given a lot more flexibility as to how and when you pay off. Most borrowers make fixed repayments over one to five years. However, this period can be more or less depending on the creditor. Some lenders will even offer you a payment holiday (usually lasting two or three months) right at the start of the agreement. Having said that, the best rates are usually only given to borrowers who intend to pay back the loan over three to five years. This is where unsecured loans are double-edged swords. If you want to borrow over a shorter period of time, you’ll be looking at much higher interest rates. Compared to secured loans, the interest rates can also be a lot more expensive on larger or smaller amounts. Furthermore, the very best rates on these loans aren’t available to people unless they have an exceptional credit score.
I hope this post has helped you find the loan that’s right for you!