What’s the difference between a secured and an unsecured loan?
While you may be stressed and rushed to take out a loan in a sticky situation, it’s important to take a moment to understand the different types of products out there. For example, you may have to decide whether to take out a secured or an unsecured loan. But what’s the difference?
Lenders need to protect themselves against the possibility that you may not be able to pay back their money. With a secured loan, the borrower takes out the loan against collateral or an asset, which the lender can seize if the loan isn’t paid back.
For example, you can take out the loan against your house or car. If you don’t pay back the loan or default on your payments, the lender has the right to take your property and sell it to pay off your debt.
A secured loan is less risky for the lender because it protects them against the possibility of not getting their money back. However, it’s more risky for the borrower. While it’s easy to sign over your house when you urgently need money, think of the longer-term consequences of potentially losing a valuable asset. Only sign up for a secured loan if you have a solid repayment plan in place and if you’re confident that you can afford to take the loan.
Unifi offers unsecured loans. Unlike with a secured loan, you don’t have to put your property at risk. It’s, instead, issued based on your credit worthiness and your affordability. A good credit record and a stable income that’s higher than your monthly expenses, give the lender an indication that you’re likely to pay back the loan. This is enough “security” for them to lend you the money.
You won’t lose your house or car if you don’t pay back your unsecured loan or default on your payments. But you could face serious consequences such as being handed over to external debt collectors or being blacklisted. That’s why it’s important to make sure you know exactly how much the loan costs. Ask yourself whether you can afford the repayments before you sign on the dotted line.
Secured or unsecured: Before you decide
Whether you take out a secured or an unsecured loan, think carefully before you sign a loan agreement. People who need to take out a loan, are often going through a stressful time. Perhaps you need to pay a hospital bill for a family member, or your spouse lost their job and you need to take on additional household expenses. While our emotions often get in the way when it comes to money matters, try to keep a level head. Think of the long-term repercussions if you’re unable to pay back the loan. Work out what your monthly repayments will be (try the calculator on Unifi’s homepage). Finally, calculate your monthly expenses against your income to see whether your budget has room for the loan repayments.
If you’re ready to take out an unsecured loan, complete Unifi’s fast, simple online application. We don’t charge any upfront fees and do proper checks to ensure you can afford the loan we’re offering you.