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Should I take out a secured or unsecured personal loan?
Basically there are two types of personal loan. Secured loans are those where you agree
to offer the lender security over one or more of the assets you own, although usually it
is your property. This means that the lender has the right to take ownership of the asset
if you fail to make the repayments that are due under your loan agreement.
The advantage of a secured loan is that the lender's risk of default is reduced;
this normally means that they charge a reduced rate of interest or accept a longer
repayment period. In either instance it normally means you are required to make lower
regular payments. You must carefully consider the risk of losing the asset, were you
to fall into arrears with the required repayments, against the advantage of paying
slightly lower regular payments (this is especially important if the security you
offered was your home).
The alternative to a secured loan is one that offers no protection to the lender apart from
their belief that you will be able to repay their debt. These are known as unsecured loans.
The rates of interest charged are normally higher or the maximum loan terms are significantly
shorter than those available for secured loans.
Before you decide on whether to have a secured or unsecured loan you must consider
carefully the terms of the loan being offered to you. Always read the small print.
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