Lets start off with what a personal loan is. It is a loan that is used for personal uses like expenses, renovations, education, vehicles, vacation, paying off credit cards and the like. Different lenders have different rules on what a personal loan can and can not be used for. Two things that lenders commonly don’t permit a personal loan to be used for are for investments and for business purposes. There may be other restrictions and rules which vary by lender so check first what they allow.
A regular personal loan is usually an unsecured loan, meaning that the lender does not take any collateral for the loan. For the lender it is a risky proposition to give unsecured loans so to obtain one, the application process is more stringent. Things they will look at are your credit score, credit history, outstanding debts and obligations, if you have a job or steady income, how the loan will be used, overall risk, reference checks and more information will be needed for the application and screening process. Sound like a pain? Not necessarily, if you have good credit, history with your bank and a good job and low debts and outgoings, an unsecured personal loan may not be a problem for you. It is worth noting that unsecured personal loans almost always carry a higher interest rate than their secured counterparts.
Secured personal loans are much less risk for the lender. You must secure the loan with your property to guarantee the loan amount. The lender will put a lien on the property until the balance is paid off in full. If you happen to default on the loan, the lender can seize your property to pay back the funds that you borrowed. It sounds scary that you could lose your home but with careful planning and prudent budgeting, it is actually a quite attractive loan option.
First, the secured loan is much easier to obtain. As long as there is enough equity in their home, most are able to easily qualify for this type of loan. There are even secured loans for those with bad credit and CCJ (county court judgements). Another benefit of a secured loan is cost. Secured loans are generally available at a much cheaper interest rate. This is because it is a less risky proposition for the lender as the loan is secured with your property. The secured loan is generally also available in much larger amounts. This is helpful for larger debt consolidations, home renovation projects and larger purchases that need to be made.
We hope this has been a helpful overview to understand the difference between a secured personal loan and an unsecured personal loan. If you are currently in the market for a loan, we are happy to provide you with a free online quote with no obligation. Just fill out the form on the right of the screen and our system will seach our huge pool of lenders to find the right loan for you. A loans expert will then get in touch with you to discuss your best options.
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