Are personal loans better than secured loans?

When you are out looking for a loan there are two obvious choices: personal loans (unsecured loans) and secured loans. Although secured loans tends to have a cheaper APR%, but there are other factors to consider.

When you are looking to finance a new car, that dream holiday you always wanted or even the long planned home improvement, your first point of call for getting a loan would be a bank . From the banks point of view, if you credit score is good, they would try and issue a personal loan as they would make more money from a higher APR% than a secured loan. However if a personal loan application fails, banks would be keen to provide you a with a secured loan as a secondary option.

A secured loan would require your house or car as a security against the loan, should you fail to make the repayments. Interestingly secured loans seem to be a popular option these days as they are cheaper (lower APR%) and have higher acceptance rates than personal loans.

Be mindful of the terms though. Although the APR% on secured loans may seem lower but the term over which repayments are made are usually longer. Meaning that the overall cost of a secured loan could end up being much more than a personal loan. Lenders or banks offering secured loans which are adjusted into your mortgage (i.e. remortgage) could hence be bad deal over the long run as the loan is stretched over the remaining life of your mortgage, making costing you interest for every year on the remaining balance over the remaining life of your mortgage.

So which is better? Although the rates and terms on secured loans may seem much better on your pocket with the easier repayments but the crucial point here is to remember that it is a loan secured on your property or car. This makes a secured loan a risky deal as losing an asset worth more than the loan amount is a risk which should not be taken. The best advice here is to never take on a secured loan unless you have no other option. In summary secured loans are not worth the risk of losing your home or car. If banks fail to provide you with personal loans, there are other alternatives available such as social lending sites .