Literally speaking, when a person is seeking for credit, he/she have an option of whether to go for secured debt or unsecured debt. When we talk about unsecured loans, we are essentially looking at a form of credit where the lender does not ask for any tangible asset from the borrower as security but rather advances credit on the promise that they will pay. Examples of unsecured loans are personal loans and credit cards. On the other hand, secured loans which form the subject of our article refer to a loan where the lender (in this case mostly a bank) require the borrower to have some form of tangible asset that the financial institution can hold in lieu as the borrower repays the loan.
In order to avail a secured loan, you need to set up any of your valuable assets as collateral. This serves to reduce risk on the part of the lender and simply means that in the unlikely event that the borrower is unable repay their loan, they can always have something to fall back on and therefore it is a less risky form of lending to the lender. That said, what are some of the features of secured loans?
As stated above, what differentiates secured loans from unsecured loans is the aspect of collateral. In other words, you cannot be considered for a mortgage or a huge business loan if you don’t have collateral. All secured loans must be backed by some of tangible assets before the lender can extend credit.
The second outstanding feature of secured loans has to do with the period of repayment. Secured loans are generally long term loans that can be repaid anywhere between 5 and 30 years. A good example is a mortgage loan that can be repaid for up to 30 years. The same cannot be said of unsecured loans that are generally short term and repaid within a year.
- Less risky
There is no denying that secured loans are less risky to the lender compared to unsecured loans. The aspect of security simply means that lenders have something fall back on and recoup their money should the borrower be unable to meet their end part of the bargain.
Now that we’ve taken a look at the core features of secured loans, lets shed light on why this type of loans are popular with individuals in the UK. First and foremost, it is imperative to note that secured loans are easy to obtain even for individuals with a less than average credit score. One simply needs to have collateral!
Secondly, the interest rates for secured loans tend to be slightly affordable or rather lower compared to unsecured loans. This again is influenced by the reduction in risk as a result of collateral.
Third and the most important benefit is the fact that secured loans offer individuals whose credit scores is in tatters an opportunity to repair it especially if they make repayments without any problems.
In light of the aforementioned, there is every reason as to why you should go for a secured loan. The benefits indeed far outweigh the demerits so to speak!