When you need extra cash quickly, you can get a personal loan to help. With just a few taps on your phone, you can have instant cash. Regardless if you’re looking for a secured or unsecured loan, a reputable moneylender is at your service.
Don’t know the difference between these two loans? Well, you’re in luck. We’ll identifying the similarities and differences between secured and unsecured loans.
Secured loans work when a financial institution asks for collateral—a piece of your property or asset. The collateral serves as a security measure on the lender’s side. It provides them with assurance in the event you fail to meet your dues or your account goes into default.
It is easy to find a secured loan, as any legit lender provides this service to consumers. A secured loan is called this because of collateral. Prepare your assets, property, or cash if you opt for this loan.
Here are loan types that need collateral:
- Home equity loans
- Auto loans
- Secured credit cards
- Home equity lines of credit
If these are your intention for taking out a loan, then a secured loan is what you need.
Pros Of Secured Loans
Lower interest rates.
A secured loan ties up your assets and property. The financial risk is less on the lender’s side. Therefore, lending institutions are confident that they will get their money back and are willing to give you a lower interest rate.
There are tax deductions.
One of the perks of home equity loans (one type of secured loan) is that they’re tax-deductible. In fact, all secured loans allow tax deductions from the interest you pay. But, keep in mind this is only up to a certain amount.
Lowers threshold to qualify.
Putting up collateral reduces barriers for you to be approved for the loan. Your asset and property play an essential role, aside from your credit score and history.
Cons Of Secured Loans
Neglecting to pay an installment on time may lead to you losing your collateral.
Taking out a secured loan means you’ll have cash only for a specific purchase. Your mortgage is definitely for your home buying, while your auto loan is for buying a vehicle.
Other Factors To Consider
A credit check is still necessary for secured loans. Your credit score determines the borrower’s eligibility. It also affects your interest rates.
Penalty for Default
On-time payment is significant when you fulfill your financial obligation. Any negligence leads to a further financial dilemma.
If you miss your due on time, expect an interest rate for late payment. Get back on your track and repay on time. You’d never like the consequence if you go on default. The money lending company has the right to seize your property, assets, and money. The worst part is it drops your credit score drastically.
Secured loans are perfect for particular financial needs. If you are in these needs, check out the nearest legitimate money lending facility near you.
Unsecured loans work even without an asset—no need to risk your investment to secure the loan. Lenders like the moneylender Ang Mo Kio base your loan amount on your creditworthiness.
An unsecured loan is flexible. Use the borrowed cash for the following:
An unsecured loan is not only for a specific use. If you need cash for emergency reasons, take out this loan type. There is no tie-up like the secured type of loan. Spend the money the way you need it.
Check out other ways unsecured loans differ from secured loans.
Pros of Unsecured Loans
Available to everybody.
One of the most significant advantages of unsecured loans is that they’re available to everyone. Anyone can borrow money, even if you have a low credit score and no collateral to put up.
No potential asset loss.
Since collateral is unnecessary, it’s unlikely you’ll lose your property or any other important assets. No wonder many borrowers prefer this loan type, especially those with few prized possession.
Unsecured loans are usually in small amounts only. Therefore, the loan acquisition process is faster compared to secured loans. Some borrowers of personal unsecured loans receive quick cash the same day they applied.
Cons of Unsecured Loans
Higher interest rates.
There’s no guarantee you’ll pay the money back, which puts the lender at a higher risk. That’s why they back up an unsecured loan with a higher interest rate. But if you have a bad credit rating, expect a lower loan amount with a higher interest rate.
Loan amount limited.
Lenders provide a smaller amount, unlike with secured loans. Typically, the amount of cash you’re approved for depends on your credit score. So build your score as early as now to get a higher loan amount in the future.
Penalty for Defaulting
Failure to comply with your financial obligation will negatively impact you. Your credit score will take a dive. You will have a lousy record at other lending institutions. Therefore, you’ll have to work hard to improve your finances for future plans.
Despite all this, if something goes wrong, some moneylenders still require you to pay the loan back in full. So make sure to pay the loan back on time. It saves your credit score and even boosts it when you are responsible.
Unsecured loans are readily available for your needs. As long as you’re with trusted moneylenders, you’re one step ahead in solving your financial dilemma. Just make sure that you read a money lender Singapore review before you apply for a loan.
Do you need a secured or unsecured loan?
In the money lending industry, the higher the risk, the higher the cost. So think twice, even thrice, before you apply for a personal loan. And definitely make sure you know if a secured or unsecured loan is right for you before you apply.