Personal loans – secured versus unsecured – which is better?

Quite often you will see two different interest rates quoted by a lender, a secured loan rate and an unsecured loan rate. It wouldn’t be unusual for the difference between the interest rates to be about 5% to 10%.

The reason for difference between them is that the secured loan is “secured” against the asset you want to buy with the borrowed funds. The downside of a secured loan is if you aren’t able to keep making repayments on time and default on the loan, the lender can repossess the asset.

The secured loan rate is always substantially lower. If it isn’t then there is something wrong with that lender – find another one.

Whilst the interest rates between secured and unsecured personal loans are dramatically different, if the loan period is short then it is not a massive issue.

The most common form of security for a secured loan is a car. Most lenders will give you the option of taking the secured loan route if the car meets certain requirements such as being under 5 years old and is being sold by a reputable dealer. There may be some leeway if you agree to shorten the term of the loan.