Secured Vs. Unsecured Loans – What Are the Advantages and Disadvantages That Need to be considered?


Loans are the primary financial products offered by banks. Borrowing money through them has become increasingly easier and the limits on how much money an individual can get have grown in the last 10 years. While each loan may have different terms and conditions, depending on a variety of factors, such as the credit rating of the borrower and his relationship with the bank, almost all financial products can be divided into one of two categories: secured and unsecured. This characteristic plays an important part in the borrowing limits of a loan, as well as how affordable they are and the various restrictions that lenders might attach to them. Generally speaking, the type of loan is the most important detail in the agreement and it can have serious consequences for the borrower.

This having been said, what are the differences between the two and why do they matter?

By definition, both of them enable individuals to borrow certain amounts of money. This means that they have values, durations, and interest rates, as well as other possible terms and conditions. These are all common characteristics of any financial product offered by banks and private lenders.

Secured Loans

Secured loans are often more difficult to obtain than unsecured ones such as payday loans. This is usually because the borrower needs to have a great relationship with the lender, which means that an individual should have at least a short financial history that banks can analyze, before applying for a secured loan. This having been said, the fact that these loans are secured means that the borrower must offer collateral to borrow money. This collateral is usually in the form of a piece of real estate such as the borrower’s home, but lenders may agree to secure loans against other items that have very high values, such as art or jewellery. Having the loan secured against the borrower’s’ property also enables lenders to offer considerably lower interest rates than those for unsecured deals.

The downside is that if the borrower cannot repay the money, the bank will be able to take possession of the property that has been offered by collateral. However, this rarely happens as most lenders allow individuals to first refinance their debt or consolidate it.

Unsecured Loans

Unsecured loans do not require any collateral and are easy to access by individuals who do not have a considerable financial history. In many ways, unsecured loans are great tools for those who want to build up their credit rating, provided that they are used sparingly and repaid on time. These loans have slightly higher interest rates, lower terms (usually between two and five years), and lower values. The main advantage is that getting an unsecured loan is faster than an unsecured one. Most lenders even offer same-day unsecured loans that enable individuals to get the money in under 24 hours from the submission of their application.

Which Is Better?

There is no right answer to this question. It all boils down to the needs of every individual. Secured loans are traditionally preferred by individuals who need large amounts of money and have a lot of financial stability. These also have longer durations which means that they are better for people who have a stable financial life and can make payments for up to 10 years. On the other hand, unsecured loans have a shorter term, lower values, but do not require collateral. As a result, they are more useful for buying household appliances or electronic devices such as laptops, phones, and tablets.

What Can You Do If Your Loan Request Is Not Approved?


Regardless of how accessible most lenders make their financial products, some individuals are bound to be refused when they apply for a loan. This, however, may not be as dire of a situation as it may seem. First of all, having one loan request rejected does not necessarily indicate an issue on part of the borrower. Depending on the financial climate and the state of the global economy, certain lenders may decide to limit the number of loans that they offer, without informing the potential borrowers. This having been said, if this is not the case and the lender refuses the loan as a result of an eligibility issue, there are a few things that individuals can do to figure out what the problem is and to solve it.

Ask the Lender for Clarifications

The refusal of a loan request does not always come with explanations, especially if the application was sent over the internet. However, individuals can get in touch with the lender and discuss the issue. Please keep in mind that this may require you to personally go to the bank because the lender may not be able to disclose personal information over the internet or the phone.

In most cases, the lender will not only explain the reason for the rejection of the loan request but also offer alternatives. If there are none, ask the bank clerk to explain what you would need to do to be eligible for the loan.

Check Your Credit Rating

There is a big chance that if your application is refused, your credit rating may be too low. Unfortunately, this information is usually not offered directly by banks, which means that you will have to verify it yourself. An individual’s credit rating can be checked using the websites of the major credit reference agencies such as Equifax, Experian, and TransUnion. Here you will be able to check your credit score, as well as your credit report. This should give you all the information that you need to understand why you were refused the loan.

Try Applying For a Different Loan or From One from another Lender

If you either have a low credit score or some other issue that has prevented you from getting the loan, it may be possible to be qualified for a different one. Look at the other types of loans offered by the lender, or at the ones offered by other companies. Keep in mind that every bank has its own eligibility requirements and standards when it comes to the borrower’s credit rating.

Check the Borrowing Options Offered By Online Lending Platforms and Services

If nothing else works and the lenders that you go to do not agree to give you a loan, there are other ways of legally borrowing money. There are hundreds of online platforms that enable users to borrow money without having to pass credit checks. Keep in mind that these platforms are legal to use and they obey the same laws that banks do. However, most of them do not report their transactions to any of the national credit reference agencies.

This means that borrowing money from them will not affect your credit score, and also that your financial history will not matter when deciding if you are eligible or not for a loan. In most cases, online lending platforms only require that users provide proof of identity, proof of income, and proof of address. This having been said, do not forget that most online lenders offer higher interest rates than banks. While it may be more likely to get a loan, it will be more expensive than what you would pay at a bank.