When dealing with personal finance it can be difficult to know where to turn to when you need a little extra help. In some cases, you may not be able to look to family and friends when it comes to borrowing a little extra cash to get you between payday, and sometimes your savings might not cover a financial emergency like when your car breaks down or you need some emergency home repairs carried out. There are a number of reasons why you might need a helping hand, and here we’re helping you to decide on whether an unsecured loan is a better option for you than a secured loan.
Differences Between Unsecured & Secured Loans
One of the biggest things that prohibits people from making the right decisions when it comes to their personal finance is that they do not understand the difference between unsecured and secured loans. Unsecured loans are loans that are not secured against any of your assets. If you miss a repayment on an unsecured loan, you are not at risk of losing either your car or your home, or have debt collectors at your home trying to find something worth the amount of the repayment. Secured loans on the other hand are often of higher amounts, and these are generally secured against a home or a car – like car finance or a mortgage. If you cannot repay this, you may face your asset being repossessed.
Types Of Personal Loans
There are a number of different personal loans that you can choose from, that can be either secured or unsecured. One of the most popular forms of unsecured loans include payday loans from a reputable lender. While payday loans have had a lot of bad press over the years due to people borrowing more money than they can afford to pay back, and high rates of interest, payday loans are actually one of the most regulated in the industry – particularly when the lender is approved by the Financial Conduct Authority. Other types of personal loans that you can get when you need a little extra help with your personal finance include bank loans (although these tend to be of large amounts over a longer period of time), credit union loans, authorised overdrafts and employer cash advances.
Is An Unsecured Loan Better?
There are a number of factors that you should consider when it comes to borrowing money to help with a financial emergency or your general personal finances. While a secured loan may tend to have lower interest rates, it can be a lot harder to qualify for one – and you will need to have very good credit. An unsecured loan however, is more flexible, and in many cases you can pay these off in instalments meaning your repayments are made more manageable, despite higher levels of interest. A secured loan will also tend to give you access to larger amounts of credit, and while this can be good in some circumstances, this can also have a negative effect as people find themselves borrowing more than they actually need. Knowing whether your unsecured loan is better when it comes to personal finance or not will wholly depend on your personal circumstances – how much you need to borrow and how long for.