Often one has no choice in choosing between an unsecured and a secured loan, as if a person has no substantial asset to offer as collateral a secured loan is out of the question and only unsecured loans available. However as one becomes more financially settled in life the opportunity to have secured loans is more likely, and some necessary loans will only be offered on the proviso that they are secured.
Secured loans are less of a risk to the lender than unsecured loans, as the collateral which is offered against them is an asset which the lender can then sell to recover any unpaid monies on the loan. Because of this secured loans can be the cheapest form of borrowing, particularly to those with excellent credit scores.
A mortgage lender will always expect the loan to be secured, but there will still be differences between the rates of interest available to the borrower, which are linked to credit scoring. However those with excellent credit ratings are able to finance their mortgages at advantageous terms, along with other secured loans.
The better a mortgage loan is dealt with the better the rates available on other secured loans, such as those taken for home improvements. Secured loans can work out much cheaper than other extended forms of borrowing such as unsecured loans, or financing through credit cards when the balance cannot be paid off in full immediately.
Secured loans tend to lend more credibility to a borrower as opposed to unsecured loans and revolving credit. A mortgage loan for instance is going to demonstrate stability whilst an unsecured loan is always going to appear as riskier with a greater chance of default. Secured loans are given directly to a borrower without the need for third party endorsement which is often necessary with an unsecured loan, such as student loans. Once one has secured loans which are handled well then they can usually improve a person’s credit rating and this is reflected in better insurance premiums.
Many times unsecured loans do not improve a persons credit score as can go unrecorded, such as unsecured pay day loans, which do not get reported to credit bureaus if paid on time.
The other advantage of secured loans over unsecured loans is the likelihood of moving onto a more preferential interest rate, as the lender will be keener to retain your business. Thus if you notice a better deal than the one you have, and are not tied into a loan, you can request that your terms are changed if the lender wishes to retain your account. As secured loans are generally long term they give you greater negotiating power.
The disadvantage with secured loans of course is that you stand to lose more if you run into financial difficulties, but the risk to any asset held can be minimized by contacting the lender directly immediately a problem is for seen, and thus negotiating a payment holiday for a time, or lower payments, until a financial crisis is passed. It is again easier to negotiate over a secured loan as the lender has more to gain in the long term by retaining you as a customer.
Used wisely secured loans can cut the costs of your borrowing and pave the way to demonstrating financial responsibility and stability which will benefit you in other areas. As with all loans though there are many advantages to making huge savings if the loan is repaid early, so always check if any redemption penalties apply which will preclude you from making an overpayment or an early settlement. The best loan of all is the one which is paid off in full.