Unsecured versus Secured loans options

From time to time people will find themselves in need of a loan, whether it is because they need to fund a home improvement project, education and university costs, offsprings are getting married, the list goes on and on. Unfortunately, since the credit crunch, banks have been less forthcoming to lend money due to a number of factors such as recession, falling property prices, negative equity and rising unemployment; this has meant the number of products available and options is now limited.

What are the important differences between secured and unsecured loans?

Secured loans are normally taken against an asset such as a property or vehicle, in the event repayments are not made, then the property or vehicle may be at risk. Suffice to say, banks and other lenders are often more willing to give you a loan if it is asset backed.

Cheap, unsecured loans are also becoming harder to come by from the height of the credit boom. As a result of the credit crunch, lenders are more selective about who they will lend to and certainly those with a bad  credit history may find they are unable to obtain a loan or offered a less than competitive rate.

Don’t give up just yet, for those wanting to borrow smaller amounts over shorter periods, an unsecured loan can still be found since the risks are smaller for the banks.

Advantages and disadvantages

Unsecured personal loans are available for a range of different amounts and repayment terms. Larger loans are usually taken over a longer term, however, there is normally an upper limit to the amount that can be borrowed.

Some lenders do offer flexibility by allowing for over-payments and lump-sum payments, both of which allow you to repay the debt quicker than the term (please read the loan application small print as this varies from lender to lender).

With secured loans, the amounts are usually higher, depending on their perceived asset valuation and potential risks of defaulting on the payments. As with unsecured loans, the amount borrowed is paid monthly over the agreed term (note, if you do opt for a secured loan, then any assets used against the borrowing could be at risk if you fall behind on your payments). Again as with unsecured loans, some lenders do other flexible over-payments so that the term date is reduced.

If you fall behind with unsecured loans this could affect your credit rating and ability to borrow in future.

Before deciding how much to borrow, you should work through you monthly income and outgoings to ensure your repayments are within your means, don’t forget to factor in the annual items that tend to be paid off in one go. There are a number of online resources with income/outgoing calculators to help you understand your monthly cash flow requirements.

Debt consolidation

In recent years, it has been quite popular to consolidate all exist debts into one lump some, this reduces the admin costs and as the sum is normally higher, can result in savings due to the interest charges being more competitive. Please make sure you understand if there are costs to exiting an existing loan before the term is complete as this may have a penalty close.

Which is most suitable for me?

If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan.

If you are self-employed, have recently changed jobs or have a less-than-spotless credit history, you may find that you have no choice but to opt for a secured loan – as long as you are a homeowner of course.

Secured loans are also useful for larger amounts or where the applicant requires a longer repayment period.

Otherwise, an unsecured arrangement should suffice.

What are the alternatives?

If a relatively small amount is required, then a credit card may be a cheaper option. With many deals offering interest free periods on balance transfers and purchases, borrowing on a credit card could potentially be cheaper than a traditional secure/unsecure loan. Additionally, some providers charge a balance transfer fee, to move debt from one card to another.

If you are a homeowner and are looking to borrow more than a few thousand, then remortgaging your home is an option.

Mortgage interest rates are currently at historic lows, however, releasing equity in your property can be more expensive due to the administration costs involved.

Secured loans are also likely to work out cheaper than remortgaging for homeowners who face stiff penalties to exit short-term, low-rate deals. If, for example, you are part way through a mortgage loan, you would normally have to pay percentage of the annual mortgage repayment to exit the current deal.

Mortgage lenders are also tightening their process in the aftermath of the credit crunch, meaning that low-cost remortgage deals are no longer readily available.

What if I have a bad credit rating?

All is not loss, with the so many resources on the internet such as financial product comparison websites, direct finance companies, etc, personal finance and the process of finding a bad credit loan has become quicker and easier than in recent decades. There are a number of specialist lenders on the maret that concentrate on bad credit rating loans, however, you should be aware that these tend to be more expensive due to the additional risks the lender will need to consider.

Alan Parker is a Finance expert who provides help to people looking for a loans as well as helping individuals maintain and build net wealth.

To learn more, visit my webpage unsecured loans for bad credit now. Read about what options are available to you if you need to borrow money to pay for a home renovation project, wedding, education, etc.

Prior to getting a loan, you have to ensure first that you comprehend the kind of loan that you are getting yourself into. Though loans might be a big help during this worldwide crisis, you still have to understand the basics of loan before you apply for one.

There are many types of loans, but you have to understand two important types of loans - the secured and the unsecured loan.

The Secured Loans

Mostly, what the secured loan indicates is that you have to offer something as a collateral before your loan gets approved. The security that you can use should be an asset to you, and this may be your vehicle or your house. Naturally, the lender will still have to verify the assets that you have presented to them, and in case you stopped paying for your loan, the bank can collect your assets as agreed upon in the contact.

The secured lån are best if you are in need of a huge sum of cash to buy, for example, a house, and you can use the car that you are going to buy as the guarantee to obtain your loan. This type of secured loan is the home equity loan.

Now, the secured loan has the lowest interest rate, and apart from this, the borrower will also be given a longer duration of time to repay the loan especially since the lenders are secured knowing that you will not go back on their promise to pay the loan, particularly if you do not want to risk your property.

The Unsecured Loan

Alternatively, the unsecured loan is the complete opposite of the first type. In the former type of loan, you need not use any collateral just to acquire a loan, so you are not at risk of losing your assets or properties. In the unsecured loan, too, the lender has to put their trust and faith in you that you are going to pay back your loan, and this is the reason why it is oftentimes hard to get an unsecured loan, even if the borrower has a good credit profile.

Aside from the difficulty of getting an unsecured loan, the rate of interest of unsecured lån are also bigger than the secured loan. In addition to this, the settlement period is shorter and the borrowing sum is lower, too.

Prior to getting a loan, you have to ensure first that you understand the type of debt that you are getting yourself into. Although loans can be a huge aid during this global crisis, you really should also understand the fundamentals of loan before you get one.

There are many kinds of loans, but you have to understand two basic types of loans - the secured and the unsecured loan.

The Secured Loan

Basically, what the secured loan means is that you have to present something as a guarantee that you are going to pay before your loan gets approved. The collateral that you can utilize should be an asset to you, and this can be your car or your house. Of course, the lender will still have to confirm the assets that you have presented to them, and in case you stopped paying for your loan, the bank can take away your assets as agreed upon in the contact.

The secured lån are best if you are in need of a large amount of cash to purchase, for example, a house, and you can use the car that you are going to buy as the collateral to obtain your loan. This kind of secured loan is the car mortgage loan.

Now, the secured loan has the lowest rate of interest, and aside from this, you will also be given a longer period of time to repay the debt because the lenders are protected knowing that you will not go back on your promise to pay your loan, particularly if you do not want to risk your assets.

The Unsecured Loan

On the other hand, the unsecured loan is the complete opposite of the first type. In the former type of loan, you do not have to use any collateral just to acquire a loan, so you need not jeopardize your assets or properties. In the unsecured loan, too, the lender has to put their trust and belief in you that you are going to repay your debt, and this is the reason why it is oftentimes difficult to get an unsecured loan, even if the borrower have a good credit profile.

Aside from the difficulty of acquiring an unsecured loan, the rate of interest of unsecured lån are also bigger than the secured loan. In addition to this, the repayment period is shorter and the borrowing amount is lower, too.

Homeowner loans can be confusing for so many but they are actually quite simple.  As the name indicates it is a personal loan just like any other except rather than getting a loan from a lender with the promise of legal action if you fail to pay, you would put your home down as collateral.  This means that you are agreeing with the loan company that should you fail to make the agreed repayments each month then they can take your home.  Your home would then be sold, the mortgage lender would claim their money back and then the homeowner loan lender would take what is owed to them along with adminstrative costs.  You get anyting that is left.

I know, it doesn’t make homeowner loans sound very attractive does it?  Homeowner loans sound scary, so what are the good points?

The homeowner loan is a far more attractive proposition for the lender because they know that with a secured loan the risk is greatly reduced for them and therefore you are seen as having more potential for lending to.  You will also be able to find a more attractive low rate apr for your loan.  If you have had problems with debt in the past and now have bad credit you will almost definitely have difficulties being accepted for loans but if you have your own home your credit rating almost becomes meaningless.  It may still affect the amount of interest you pay but you will find it far easier to get your application accepted.

The loan company will naturally need to know quite a lot of information before they agree to lend you money.  You will need to provide proof of owning your home for example so have your papers ready along with any other documents that you thing may be relevant.

So it really is up to you to decide whether or not the positives out weigh the negatives.Only you can decide how badly you need that money?  If you are only looking for some fast cash so you can pay for that holiday or because you want a new LCD television for example then perhaps it isn’t really worth putting your home at risk for.  However, if it is for medical costs or to consolidate your current debts for example then homeowner loans would be a sensible choice.

If you’re searching for a good deal on a secured loan, it pays to know where to look. Finding the best rates can make a noticeable difference to your monthly outgoings - but with so many deals on offer, it can be difficult to keep track.

Explaining secured loans

If a loan is ’secured’, it means that your home is a form of ’safeguard’ against the deal. Because lenders consider this type of loan a lower risk than unsecured loans, you will often have access to lower interest rates and a longer repayment period. Because the loan is secured against your home, failing to make repayments could ultimately result in your home being repossessed (although this is generally a last resort). But as long as you're sure that you can keep up with your current repayments, a secured loan could be a great way of raising some additional funds.

How to find the best secured loan deals

There are a number of things you can do to get yourself one step ahead in the loans market. Do your research Taking the first deal you come across is rarely a good idea. It's easy to get a rough idea of the interest rates that each lender is offering - either online or on the high street. Take special care to find out whether there are any catches - some of the interest rates advertised may not apply to the amount you are borrowing, for example. Also be aware that the rate you are offered will largely depend on your credit history, so if your credit history is not perfect, you may end up paying a little more than advertised. Take your time Don’t necessarily expect to take out your new loan the very same week you start looking. It’s often a good idea to set aside some to search the market to ensure that you are aware of what deals various lenders are offering. Get free loans advice Speaking to an expert loans adviser can often make a real difference. Since they will have information on a range of lenders at any given time, your loans adviser can easily compare the best deals for your circumstances. A loans adviser can also generally advise you on the best type of loan for your needs. If an unsecured loan is more appropriate for your situation, for example, a loans adviser can explain everything in detail. For free, impartial, no-obligation advice on unsecured loans, call Think Loans on 0800 195 2910

Are remortgages and secured loans still an option in today’s troubled times? What actually happens to remortgage / secured loans markets when a credit crunch and a housing market crisis come hard on the heels of a decade of rapid house prices increases?

The first thing to note is this: it’ll take a long ‘crash’ to wipe out all the gains of the last decade (and cause serious problems for anyone thinking about a loan or remortgage). When house prices peaked in October 2007, according to Nationwide’s House Price Index, the average house had taken just ten years to more than treble in value, rocketing from £60,754 (Q3 1997) to £186,044.

It is true that prices dropped around 9% (to £169,316) by July 2008, but this took them back only to the kind of price levels we’d seen in September 2006. In other words, it took nine months to wipe out the gains of the 13 pre-peak months.

It’s always dangerous to draw parallels with previous housing market downturns, but looking back to 1989 (the last time house prices peaked), prices went down about 20% over three and a half years before starting to climb again. Prices are dropping faster this time, but the recent decade of rapid rises shows just how much demand there is for housing – or rather how much demand there will be as soon as the mortgage market picks up again…

How much equity is there out there?

Whatever lies ahead, the average person who’s owned their house for the last decade could easily have over £100,000 of equity – enough collateral to remortgage or secure a substantial loan. Aside from the increases in the property value, there’s also the ten years of mortgage payments to take into consideration.

Of course, anyone who’s already secured a loan against their property in the past would have less equity to draw on now – unless they’d used that secured loan to finance home improvements, potentially increasing the value of their house (and therefore their equity).

Is it available?

Just because the equity is there, it doesn’t necessarily mean it can be accessed. You will find now that lenders have become very cautious about lending money, even if the when the borrower is offering to secure it against property. After all, a house is less valuable as security at a time like this, when property is steadily decreasing in value and hard to sell – every lender knows that other lenders are equally hesitant about granting mortgages, which is significantly reducing demand in the housing market.

So mortgages and secured loans have become both harder to obtain and more expensive. Lenders are also generally less willing to lend as much: many are limiting remortgages to 80% of the property’s value, as they don’t know what will happen to prices and can’t rely on natural price appreciation to guarantee recovery of the funds.

However, even though the criteria are stricter, homeowners with enough equity (and the means to make the repayments) can still withdraw it – so for them, a secured loan or remortgage is still an option.