Whether you are planning for a dream wedding, thinking of taking an overdue vacation or revamping your home into a dreamy abode. You should not pull yourself back from realizing your long-awaited dreams due to the shortage of funds.
Also, if you are thinking of constructing a foundation for your startup, you can apply for unsecured business loans in the UK to arrange the needed funds without hovering over oodles of thoughts.
There are two financing options available for consumers, i.e. unsecured loans and secured loans. The significant difference between these two loans is the existence and nonexistence of collateral security. Once you go through all these factors and differences between these two loans, you are up to make an informed decision.
What is the major difference between unsecured loans and secured loans?
Every applicant has different sets of requirements and preferences. Some opt for unsecured loans as they don’t have any type of asset to pledge on. Some prefer to apply for secured loans because their credit ratings are not that impressive.
Suppose you are juggling between these two loans. The below table will help you understand the critical differences between the two. You can decide according to your situation.
| Secured loan | Unsecured loan | |
|---|---|---|
| Collateral | You need to pledge one of your assets for availing of a secured loan. | You don’t require to put any of your assets to avail of an unsecured loan. |
| Interest rate | Lower | Highers |
| Loan processing | Loan processing takes time because the assets are assessed and valued. | Loan processing is instant as there is no need for asset assessment. |
| Key decider | These loans are approved on the basis of pledged assets, the applicant’s income, and other ongoing debts. | These loans are approved based on the applicant’s income, ongoing debts, and credit ratings. |
| Credit score | A low credit score is good to go. | A high credit score is needed. |
| Loan amount | Depends on the cost of the pledged assets. | Depends on the applicant’s repayment capacity and income. |
| Loan tenure | Longer | Shorter |
| Examples | Loans against securities, FDs, gold, and property. | Personal loans and educational loans. |
Now you have gained an understanding of the fundamental differences between unsecured loans and secured loans. Let us read about their benefits.
- No set credit score
This one feature is most advantageous for individuals who have low credit scores. If you apply for unsecured loans, then the lender will not gauge your credit history. Despite having a bad credit score, you are fully eligible for it.
- Borrow a large amount.
Since the secured loans involve lesser risk for the lender, you can avail of a big loan amount in your loaning deal. The more you put in as security, the larger will be the amount you get as a borrowing.
- Lower rates with longer tenure
Secured loans embed lower interest rates, which are supposed to be paid back in extended loan tenure. This makes your repayments affordable for each month.
- Builds credit
You can get better and put up your credit score with these loans. If you make timely payments and once you reach the end of the last due. It builds your credibility and opens doors for acquiring several credit options at attractive rates and terms.
Some of the benefits of unsecured loans are mentioned below.
- No collateral required.
If you opt for unsecured loans, then you are not required to put any of your assets as the collateral security to avail of this loan.
- Less stringent criteria
The criteria for getting this loan are comparatively not stricter than other sorts of loans. If you possess a better credit rating with a firm income, it will be more beneficial for your loan terms.
- Instant approvals
The documentation involved in this loan is minimal, and the loan is processed within a day. It is a very good option for handling financial emergencies.
- Multi-purpose
Unlike any other loan, you can utilise an unsecured loan for any purpose. You are not required to submit the details about the usage of the funds. Even a jobless person can apply for it to take care of his/her inevitable expenses. Such loans are generally offered as quick loans for the unemployed with simple paperwork.
- Flexible repayments
Mostly every unsecured loan lender offers flexibility in repayment options, depending on your credit ratings and your income steadiness. Your lender will provide flexible options for your loan. You can talk to your picked lender to unlock all those alternatives.
Parting thoughts
When you think of borrowing money, then you might juggle between two options, i.e. unsecured loans and secured loans. You need to consider all the aspects which can assist you in deciding between these two options.
If you are thinking of beginning a start-up, then unsecured business loans in the UK should be your choice. These loans have gained massive popularity even during the pandemic because of their quick processing feature.
On the other hand, if your credit score is unimpressive, you can opt for secured loans. Both the options have a different set of interest charges, borrowing limits, and loan tenure.
Lenders are ready to give large amounts in secured loans as they have collateral security which can be repossessed if the applicant fails to repay the loan. At the same time, the disbursement of money is comparatively quicker in unsecured loans than in secured ones. Therefore, read all the factors mentioned and decide what suits your requirement and affordability the best.
