When it comes to getting a loan, you’ll either have the option of getting it secured or unsecured. For anyone who has never taken out any form of finance, it can be difficult to know exactly what these terms mean and how they will reflect on your loan. Here we will delve into these terms to give you a clear picture of how they work and whether or not they will be right for you.
Secured loan
In simple terms, a secured loan is when one of your assets is used as security for the loan. If you fail to pay, then a company would be able to use this asset in order to reclaim their money. Therefore, the company giving you the money has reassurances when giving you the loan that it will definitely be repaid.
The most obvious example of a secured loan is a mortgage. If you don’t make your repayments then your property could well be repossessed. If you get a loan secured against your commercial property or land, then it’s likely they’ll apply for a charging order if you don’t pay. This means that you have to pay off the loan when the property is sold.
While these can be seen as negatives, you can generally receive a higher loan amount than with unsecured loans as the bank or company will be more comfortable with lending money. Also, you often receive lower interest rates due to that added security.
Unsecured loans
In contrast, an unsecured loan is where the person giving you the money has no security and therefore no safety net should you fail to pay the loan. Due to this, higher interest could be charged but you don’t have that fear of an asset being taken away.
These are generally lower value loans that will probably be paid over a shorter period of time. They are by far the most common loans as not everyone has an asset they can use as capital and also people are hesitant to put their assets at risk.
Both of these types of finance can be great depending on your situation. Many people need finance in order to build their homes, companies or infrastructure. It’s important that any solution you choose works for you and your budget.
Secured and unsecured loans – where to find out more
If you would like to know more about secured and unsecured loans or you think your business could benefit from a boost in cash flow, visit Tower Leasing’s Alternative Finance page or get in touch with a Tower Leasing representative.
Image: Money by 401(K) 2013 licensed under Creative Commons 4.0
