When looking for a personal loan, one of the key considerations is whether to choose a secured or unsecured loan.
MELBOURNE, Australia – June 21, 2021 – (Newswire.com)
What is the difference between a secured and unsecured loan and what factors should be considered when deciding which loan is right? Leading finance broker National Loans, who provides a range of asset finance solutions, such as balloon payment car loans, caravan finance and boat finance, explains that a secured loan is one that is “secured” against something, like a car or house.
Essentially, an asset, or part of it, is offered up to protect the lender against the risk of loan repayments not being met. In the instance that a secured loan cannot be paid, the lender would sell the asset to cover the value of the loan.
According to National Loans, interest rates for secured loans are generally lower when compared to unsecured loans, because there is added financial security for the lender. Some assets that can potentially be used for security include a cash deposit, property or equity in property, vehicles or equipment, such as a car, boat, motorbike or farm machinery, as well as high-value items such as art or jewellery.
On the other hand, National Loans says an unsecured loan doesn’t require the borrower to put forward a form of security to the lender. Lenders assess potential borrowers differently, depending on whether they are applying for a secured or unsecured loan. With an unsecured loan, the lender places more emphasis on factors relating to the state of the borrower’s finances, like their income and credit score. This allows them to determine the borrower’s capacity to repay the money.
National Loans points out that because unsecured loans carry a higher risk to the lender, the interest rate is generally higher. In the event that the borrower cannot make their repayments on both a secured and an unsecured loan, the lender has the option of legal proceedings.
When deciding which type of loan is more suitable, National Loans says the borrower should consider the overall cost of the loan. There are a number of factors that will influence the cost, including the amount borrowed, loan term, interest rate and fees.
National Loans can provide financial solutions for borrowers looking for a caravan loan, boat loan, car loan or other types of personal or commercial loan. Offering loan terms from one to seven years and fixed interest rates, the online application process is simple.
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National Loans Compares Secured and Unsecured Loans