Secured Or Unsecured Personal Loans: Which One Is Right For You?

Trying to choose between secured and unsecured personal loans

01 Jul Secured Or Unsecured Personal Loans: Which One Is Right For You?

Many people rely on credit to pay for life’s big expenses, like getting a car loan to buy a new car, a home improvement loan to finance the renovation project, an emergency loan to help cover urgent medical bills, or a debt consolidation loan to pay off credit card debt and save money on interest costs. If you are one of those people who need a little extra help to cover everyday expenses, repairs to your car, unplanned medical bills or even a holiday, you might want to look for a personal loan. When considering your options for personal loans, you may need to choose between a secured personal loan and an unsecured personal loan. Knowing which of these is right for you can be challenging, so to help you decide here’s a useful comparison.

What is an unsecured personal loan?

Unsecured personal loans are loans that are not protected by collateral. This type of credit allows you to borrow money without having any form of security.

Because lenders carry more of a risk with this type of loan – with no asset to recover in the event of a default – the interest rates are usually higher than those charged to borrowers with secured personal loans. Also the amount you can borrow will tend to be less meaning these types of loan are more suited to smaller loan amounts.

Before you’re approved for an unsecured personal loan, lenders will assess your credit score, your repayment history and your income. To be approved for unsecured personal loans, you’ll need to show a good history when it comes to repayments and managing your debt.

The main advantages of an unsecured personal loan include:

  1. Not having to leverage any of your assets in order to secure finance.
  2. A faster loan approval process, as there are no assets to evaluate.
  3. There is no risk of your property being repossessed in the event of a default.

When is an unsecured personal loan right for me?

An unsecured personal loan doesn’t require any asset as collateral, which makes it an excellent financing option if you don’t want to commit something that you already own to cover the repayment of the loan in the event of a default. It’s worth noting that, since the lender doesn’t have any collateral to seize if you do miss repayments (we’re sure you won’t), criteria to be approved for an unsecured personal loan may be tighter – you may need a solid income and a good credit history to be approved for the loan. What’s more, this form of finance is usually offered in a smaller amount and has higher interest rates than secured loans due to the higher risk involved for the lender. In the case of Max Loans, however, we’re proud to help Kiwis arrange personal loans with some of the most competitive rates and terms. With years of experience in the financial industry and a deep understanding of different lenders’ lending criteria, we make it easy to compare unsecured loan products in the market to help find the deal with the best possible interest rates and features.

What is a secured personal loan?

Secured personal loans are loans that are protected by an asset that provides security to the lender that your loan will be repaid. With this type of loan, assets such as a car or a home are held by the lender as collateral until the loan is paid in full.

Secured personal loans are the most common way to borrow large amounts of money at a reduced risk to the lender. If you can’t repay a secured personal loan, the lender can sell your collateral to pay off the loan.

The main advantages of secured personal loans are:

  1. You can usually borrow a larger amount with lower interest rates, as lenders view secured personal loans as less of a financial risk.
  2. Repayments usually can be spread out over a longer period of time.
  3. Even with a bad credit history you may still qualify for secured personal loans. Over time, it is possible to build up a good credit score by maintaining loan repayments and paying back your debt in full.

When is a secured personal loan right for me?

As secured personal loans are considered less of a financial risk for the lender, interest rates charged on this type of lending are usually lower than for other types of credit. Depending on your needs, secured personal loans can offer longer repayments too, and in many instances, those with a bad credit history may still be approved for lending provided they have some form of collateral.

This makes secured personal loans ideal in situations where you need to borrow a large amount of money and pay it back over a longer period of time, or if you need help getting rid of high interest debt, by consolidating existing debt into one manageable secured personal loan to get debt-free much faster.

Which type of lending is right for me?

Which loan is best for you will depend on your current financial situation, as well as factors such as which assets you can use as security and your credit score. Before you make a decision around which type of credit to choose, each of these factors should be taken into consideration as they will impact your credit application, the amount you may be able to borrow, and the interest rate you’ll be charged.

At Max Loans, we help our customers arrange both secured and unsecured personal loans NZ wide to ensure that, whatever your financial situation, we will have an option that suits you. To ensure the success of your credit application – or to get advice around the right lending option to fit your unique situation – contact a Max Loans Personal Lending Adviser today.

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