Deciding between secured and unsecured loans

Finding the right mortgage loan for you and your financial needs is important - after all, you don't want to pay any more for your mortgage loan than you absolutely have to. When shopping around for a mortgage loan, you might find yourself facing a decision between applying for secured or a unsecured loan.

If you're not entirely sure what the difference is or which type of mortgage loan is right for you, then the information below should shed a little bit of light on these two different types of loans and when the best time is to use each.

Secured Loans

Secured loans use collateral (some item of value that can be sold to recover the money that has been borrowed if the borrower is unable to repay the loan) as security to guarantee the repayment of the loan.

As a result of the collateral that is used to secure the personal loan, mortgage lenders are usually more willing to grant lower interest rates for secured loans. The interest rate offered depends upon the credit rating of the person applying for the loan as well as the value and ease of finding a market for the item used as collateral.

Unsecured Loans

As the name might imply, unsecured loans are loans that do not use collateral as a guarantee that the loan will be repaid. Because of this, unsecured personal loans are much more likely to have a higher interest rate.

These personal loans are still advantageous, however, since there is no collateral that could be seized and sold by a mortgage lender. Unsecured loans are generally given to individuals with good credit, though depending upon the amount to be borrowed, there are some unsecured loans which are offered to individuals with less-than-perfect credit as well.

When to Use Secured Loans

Secured loans can be used in a variety of different circumstances, for example, if the individual who is applying for the loan doesn't have the best of credit. This doesn't mean that secured loans are used exclusively by individuals with bad credit - many people with good credit still choose to use secured loans for their needs because they can get a lower interest rate that way.

Additionally, some high-value items such as real estate and automobiles serve as the collateral for their own loan and therefore don't have much of an option aside from secured loans. The larger the amount to be borrowed is, the more likely you are to have to take out a secured loan to borrow it.

When to Use Unsecured Loans

Since they don't have the guarantee of collateral, mortgage lenders are generally much more careful when issuing unsecured loans. For lower-value loans, however, unsecured loans can be very helpful. Short-term mortgage loans that are unsecured can save on paperwork and remove the fear of losing your collateral, all the while not hurting you too much with a higher interest rate because of the shortened amount of time that it takes to repay the loan.

Though many mortgage lenders are hesitant to make unsecured loans to individuals with poor or bad credit, a thorough search can help you to find mortgage lenders willing to make unsecured loans to individuals regardless of their credit. This can be useful in catching up on some bills, consolidating them into the single unsecured loan payment.

If you are looking for a secured personal loan or an unsecured personal loan, speak to an Intellichoice mortgage broker on 1300 55 10 45 and we will help find the best mortgage loan for you based on your needs and circumstances.