Are you thinking about applying for a personal loan? If you are, you have plenty of decisions to make as you determine the right financing option for your current situation. As you determine the purpose of loan, request your free credit report, and shop around for the top online personal loan company, you’ll ultimately need to decide whether your personal loan will be secured or unsecured.
This decision will have major ramifications for every facet of your personal loan moving forward, but what really is the difference between secured and unsecured personal loans? The differences are significant and will leave you with much to consider. Continue reading to find out more.
What is a secured loan?
Secured loans are backed with collateral. Collateral is an item or asset of value used as proof that the borrower will be capable of covering the cost of the loan if, for some reason, they fail to make their payments. Common collateral items (sometimes referred to simply as “loan security”) could include a home, car, or other valuable items like a piece of gold or diamond jewellery
Advantages of secured loans
Loan security (collateral) assures your lender that you have the assets necessary to cover the cost of your loan, which sends the message that your loan is a safe, reliable investment. The results of secured loans are typically lower rates, more accommodating terms, and a higher borrowing limit. However, establishment fees are often higher on secured loans and this needs to be weighed against any lower interest rate.
Nectar typically does not take collateral for our personal loan options, but we have (on rare occasion) worked with clients to take a security on a motor vehicle if they wished to borrow beyond our established unsecured borrowing limits. If you default on your loan, you could lose your collateral item. However, a lender is required to work with you to make sure this is only necessary as a final effort to recover the loan.
What is an unsecured loan?
Unsecured loans are loans not backed by collateral, and for that reason typically result in slightly higher interest rates and lower borrowing limits. Defaulting on an unsecured loan will likely result in a call from a collection agency, land a heavy blow to your credit score and may result in court action, but your assets will be safe from seizure.
Advantages of unsecured loans
Because collateral isn’t listed in your loan application, unsecured loans are both easier and faster to obtain, making them preferable for many people.. Additionally, these loans are less complex, making them ideal as medium-term financial solutions for unexpected expenses.
Which loan is right for you?
Deciding whether a secured or unsecured loan is the right choice for you depends on your financial circumstances and preferences. If you wish to take out a larger personal loan and have the assets and financial stability to ensure a problem-free repayment, then a secured personal loan might be ideal for you. If you need your cash quickly or have a good credit score, an unsecured personal loan might give you the flexibility you need.
Either way, Nectar offers competitive rates and some of the fastest approval rates for loans NZ wide. Our 100% online process is fast, easy, and designed to accommodate your busy lifestyle. Get started on your personal loan today!