Personal Finance Options: Secured Loans Vs Unsecured Loans

There are many financial options available to today’s consumer. If you see something that you want, there almost always is a financing option to help you get it. This gives you unbelievable buying power, but it can also put you in debt. If used correctly, however, loans can be a great asset. They can help you have a nice home, a nice car and the life that you’ve always dreamed of.

There are two major types of loans: secured loans and unsecured loans. Secured loans are loans that are secured by property that can be resold. Some types of secured loans are home loans, car loans, motorbike loans, boat loans, land loans, holiday home loans, business loans, etc. Unsecured loans do not have any collateral to back them up. In other words, if you default on these loans, the creditor cannot take your property. They can only sue you personally. Types of unsecured loans include personal loans, Christmas club loans, plastic surgery loans, education loans, and revolving credit lines such as credit cards.

There are benefits and drawbacks associated with both types of loans. A mix of both is often best. In fact, financial advisors recommend a mix of credit including both secured and unsecured loans. An ideal ratio is one secured loan to every two unsecured loans or lines of credit. In the following two sections we will take a closer look at the pros and cons of both secured and unsecured loans.

Pros and Cons of Secured Loans

The following are points that you should keep in mind when taking out a secured loan:

• The loan will be secured by your property. If you fail to pay for the loan, you may lose your property.
• Secured loans often have a lower interest rate than unsecured loans.
• Secured loans are often larger than unsecured loans.
• Secured loans can help you purchase property such as a home or vehicle.
• Secured loans help build credibility on your credit report.

Pros and Cons of Unsecured Loans

The following are points that you should be familiar with before you apply for an unsecured loan or line of credit:

• Unsecured loans have higher interest rates than unsecured loans.
• You could be sued or your wages docked if you fail to pay for the loan.
• Unsecured lines of credit are commonly responsible for credit problems.
• Unsecured loans can help you pay for major life events that you cannot afford otherwise.
• Unsecured loans, if used correctly, can also help build credibility on your credit rating.

As mentioned before, financial advisors recommend a balanced mix of credit. You should also use the credit extended to you wisely. Always ask yourself if you can really afford a loan and if you really need it. Lenders will keep lending you money well past your REAL credit limit. Knowing your limit can help you stay out of financial trouble.

Steven Clarke - Marketing Manager for www.theloanshelpline.co.uk. We offer a loans advice service which compares all the best UK cheap loans to get you the cheapest loans deal.