Secured vs. Unsecured Loans: Which One’s Better for You?

Figuring out the right way to finance a purchase can be tricky! With so many loans on offer, you might be at a cross road trying to choose which path is right for you. On one side, you have the unsecured loan options also known as personal loans, and on the other, you have a big array of secured loans available.

So, how do you choose between these two financial roads ahead of you? It’s simple — just take careful look at your distinct financial needs; they’ll help you make the right decisions. You need to be clear about what you need the money for, what your financial situation currently is, and what you’re ready to put on the table before you repay your loan.

Without further ado, here are the secured vs. unsecured loans basics you need to know to make the right financial commitment.

1. What Is a Secured Loan?

Secured loans are the perfect option for those of you willing to use your personal possessions to secure your funding. Also known as collateral, these valuable possessions are what loaning bodies use to make sure you will repay the borrowed money. The loans are “secured” by a house, car, or precious metals (thus we have loan money for gold or silver) and are technically of no risk to the loaner.

Probably the most popular type of secured vs. unsecured loans is the mortgage. Other popular loan types include business loans (including small business loans), car loans (both new and used) , equity, and lines of credit. Collateral loans are usually the only option to obtain a large sum of money (above $25,000), which makes them suitable for big financial investments such as a new home purchase or fueling a big business venture.

Even though loans can be offered to individuals with a low credit score — there are even loans with no credit check — banks and other loaning bodies will usually make their decision based on the following 3 questions:

1.      Are your appreciating assets enough to secure the loan?

2.      Is your income high enough to guarantee you will be able to cover the monthly installments?

3.      Is your financial history and credit good?

Pros and Cons of Secured Loans:

·         Pro: Low interest rates, longer repayment periods and high borrowing limits (based on your personal circumstances).

·         Pro: Easier to secure, due to the collateral “secure” factor.

·         Con: The overall approval process could take longer compared to others loan types because of the collateral assessment period

·         Con: You bear the risk of losing your collateral if you fail to default your loan. Even though there are cases in which you might miss out on a few payments without any consequences, you need to stick to the terms laid out in the contract and repay your loan in full.

2. What Is an Unsecured Loan?

Unsecured loans, also recognized as signature loans and personal loans, are a brilliant choice for all those who might not own any valuable assets, but do possess a good credit score. These loans are offered to individuals or small business owners in need of quick or everyday financing. With secured vs. unsecured loans, banks or loaning bodies don’t gain any assets or ownership for the capital they are owing.

The most common types of unsecured loans include student loans, credit cards and lines of credit. Due to the fact that unsecured loans are only bound by a contract which involves no collateral, they’re usually for lesser monetary value and include a more strict repayment plan. Furthermore, the secured vs. unsecured loans is usually assessed based on your credit score or financial income.

Pros and Cons of Secured Loans:

·         Pro: Unsecured loans are easy to get and are great for covering emergency costs.

·         Con: Most unsecured loans have high interest rate (sometimes up to 12%) or high annual fees.

·         Con: The interest rate is based on your income, credit score and repayment period. Even though you can receive a business or personal loan for bad credit, your interest rate is expected to be high. Nonetheless, if you have a good score the rate will be more reasonable. Overall, longer repayment periods (3–5 years) tend to have lower interest rates.

·         Pro: You usually have the flexibility to choose the repayment period. Most people choose a period between 1–5 years, so that the monthly installments don’t affect their income in any large way.

3. Top Secured and Unsecured Loan Picks

Zillidy is one of the top Toronto companies which offer a wide range of secured loans. These include Canadian business loans for corporations of any size and personal secured loans. The collateral we accept at Zillidy includes personal possessions such as precious metals, jewelry, and high-end watches. Zillidy requires no credit check or financial history, thus the no-credit check business loans are perfect for any individual who doesn’t want their previous financial choices to impact their loan T&Cs.

HSBC is a Canadian bank which offers unsecured loans for any of your smaller needs. These personal loans have a typical repayment period of up to 5 years with weekly, bi-weekly or monthly repayment options. Even though you can choose between a fixed or variable interest rate, HSBC gives you the option to get preferential rates if you are an HSBC Premier or HSBC Advance customer.

{Source: http://www.zillidy.com/blog/secured-vs-unsecured-loans/}