To Secure Or Not To Secure... By R. Charlton At Isnare.com Ezine Articles

If you're thinking of taking out a loan there are a number of options that are open to you, although this will depend on your circumstances and your credit rating. For those that own their own homes, have some level of equity in the home, and have a good credit rating there are both secured and unsecured loan options available. But is it a good idea to secure a loan against your home if you have the option of secured on unsecured?

Some people may not have any option other than to go for a secured loan, such as those with a bad credit rating. If you have bad credit then the chances are that you will not be offered any unsecured finance because the risk is too high to the lender. However, if you have equity in your home then there is a good chance that you can get a secured loan, because the collateral that you provide (i.e. your home) acts as security to the lender.

Other people may have no other option than to opt for an unsecured loan, such as those who do not own their own property, or those with no equity in their home. However, in order to get an unsecured loan you will have to have pretty good credit, as otherwise most lenders may reject your application.

If you do have the choice of either a secured or unsecured loan there are a number of factors to take into consideration when making your decision. There are advantages and disadvantages to both types of loan, some of which are outlined below.

Secured loans

Pros:

- You will usually enjoy greater borrowing power with these loans based on the equity in your home.

- The repayments periods are usually longer, which allows you to enjoy lower monthly repayments.

- These loans are suitable for those with poor credit.

Cons:

- You will usually need to have some level of equity in your home, which is the difference between the value of your home and the amount outstanding on your mortgage or other loan secured on it.

- You could be saddling yourself with a long term debt and a huge financial commitment.

- Your home could be at risk if you fail to keep up with repayments on your home.

Unsecured loans

Pros:

- These loans are available to those that do not own their own home.

- There is no risk of losing the roof over your head if you default on repayments.

- These are shorter term loans, and you will therefore be free of your debt more quickly.

Cons:

- You may not be eligible if you have poor credit.

- The shorter repayment term can mean higher monthly repayments.

- Borrowing power may not be as powerful as with an unsecured loan.

It is important to look at the big picture when looking into loans, and to work out which type of loan is best suited to you based on your needs and your circumstances.

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