Unsecured Loans

What are Unsecured Loans? - Unsecured Loans vs. Secured Loans

Unsecured loans are loans granted to consumers which are not tied to any physical asset. This means that you don't have to put up your home, car, or other asset as security in order to get the loan. If you default on your payments a lender cannot seize your asset in order to repay the debt. Secured loans usually require consumers to place their houses at risk. In fact it may be difficult to qualify for a car or mortgage loan with this kind of collateral.

Unsecured loans are often granted to students, people who live with their parents or tenants of a property. If you don't own a home you cannot be granted a secured loan so you will be offered an unsecured loan instead. Unsecured loans can usually be granted more quickly but are going to cost you more. This kind of loan is clearly riskier for lenders. They want to know that the debt is going to be repaid. Since there is no home to repossess if the debtor defaults this can get tricky.

Interest rates on unsecured loans are usually much higher than on secured loans. Try to find a lender that allows a fixed rate of interest to keep your repayments more consistent. You may qualify for a secured loan instead if you own your own property.

Unlike unsecured loans, secured loans are tied to your personal property. If the asset has value it can be sold to recoup a lender's loss should you default on your repayments. Business might take out a loan that is tied to their fixed assets like buildings and machinery or even vehicles. Most secured loans, however, are tied to the borrower's home. The property boom has made it possible to make huge profits on homes in a very short period.

Unlike unsecured loans which may be difficult to get secured loans are available to a more diverse range of applicants since the home offers unmatched security for banks and other lending institutions. If you are young you might be locked into the unsecured-loan-only trap so shop around and try to find the best deal possible.