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What is an unsecured loan?
Borrowing money without providing the lender a security (such as a property or vehicle).
What is a secured loan?
The lender secures the loan against an asset such as a property or vehicle. If you fall behind with the loan payments, the lender can take possession of that asset.
TRUE OR FALSE: Secured loans are safer than an unsecured loan.
FALSE: Borrowers assume that secured loans are safer than unsecured loans. However, secured means safer for the lender, not the borrower. Therefore your asset such as your home or vehicle is at risk if you fail to make the regular repayments of the loan.
TRUE OR FALSE: Unsecured loans have no risks.
FALSE: If you own your home, but fail to make regular payments on the unsecured loan, your lender may be able to secure a charge order against the property. This means when your property is sold, the debt will have to be paid from the proceeds of the property sale.
If a charging order is successful, the lender may also apply for an Order for Sale. If this is granted as well, then the process is almost the same as if you had obtained a secured loan against your property, which means the forced house sale can result to settle the outstanding debt.
TRUE OR FALSE: You pay more interest for longer term loans.
TRUE: Spreading payments over 10 years versus 5 years, the regular payments will be smaller, but you will end up paying more in the long run due to the additional years involved.
Things you should find out before taking out a loan:
Paying off a loan quicker will save money in the long run, make sure the loan can be paid off early without incurring any early redemption charges.
Understanding the interest rates tiered banding rates could save you money since tiered rates are more competitive as the amount you borrow crosses over different bands i.e. 9999.99 versus 10000.01.
Taking short holiday's from your repayments is normally a false economy as you tend to still be incurring interest on the debt, therefore, you either have to pay more or over a longer period of time.
Visit fast unsecured loans or find a bank loan for more information.
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