Prior to taking out a car loan, it is important to be fully informed about your choices and responsibilities so you can select the option that best fits your financial circumstances. Have you considered when it would be most appropriate to take out a secured vs unsecured loan? Choosing the proper financing option requires reviewing your available cash flow and assets as well as understanding some financial terminology. Jet Team Finance has assembled this analysis of the differences between secured and unsecured loans to help you understand which is the right choice for your current situation.
While we do our best to provide accurate information at the time of posting, the following information is general advice and you should always discuss financial matters with a professional before making any decisions.
What is the Difference Between a Secured vs Unsecured Loan?
The differences between secured and unsecured loans are primarily centred on the lender requiring or not requiring security.
A secured loan is a loan that is borrowed against something you own, like a home, vehicle, or some other valuable item. The lender uses this item as security in case you cannot pay back the loan. If you are unable to repay the loan, the lender can seize the security and sell it to recover the money owed to them.
Secured loans commonly have lower interest in comparison to unsecured loans because of the security provided to the lender and you are typically able to borrow more as well. It is important to understand that the loan does not guarantee getting funds equal to the value of the item used as security. Just because you offer something worth $50,000 does not mean you will get a loan matching that amount.
Another distinction in a secured vs unsecured loan is the amount of time it takes to receive approval. The item you put up for security needs to be assessed which results in longer approval times. However, a benefit to secured loans is that once approved you generally have a longer repayment period.
Finally, a secured loan constrains how you can use the borrowed funds. Lenders often have restrictions in place regarding the use of the money and borrowers may need to provide specifics about how and what the money will be used for.
An unsecured loan is a loan that has no security requirement connected to it. Student loans, credit cards, and personal loans are typical examples of unsecured loans. Often, they are approved quickly as lenders simply need to assess your income, finances, and expenses to determine your ability to repay the loan.
Frequently they are used to borrow smaller amounts of money and are flexible in regards to what can be done with the funds. However, the interest rates tend to be higher because of the greater risk involved and the repayment schedule may be shorter in comparison to secured loans. While no security is required, borrowers are still legally obliged to pay off the debt and lenders can take action to regain their funds.
Choosing a Secured vs Unsecured Loan
The differences between secured and unsecured loans aren’t the only factors to consider when deciding which to choose. As with many financial decisions, the right choice depends on your circumstances. It’s important to consider your reasons for needing the money, the goals you have for using it, and a timeline for repayment.
Looking for Car Loans?
Take advantage of the expertise provided by the professional car finance brokers at Jet Team Finance today! To learn about more options for taking a secured or unsecured loan call us on 1300 538 346 or fill out our online form.