In New Zealand, when it comes to borrowing money, one of the key decisions you will need to make is whether to take out a secured loan or an unsecured loan. Each type of loan has its own advantages and disadvantages, so it’s important to understand the differences between them before making a decision.
What is a secured loan?
Typical assets used as security
Examples of things that can be used as collateral for a secured loan include your house, car, savings account, or other valuable assets. The value of the collateral will determine the amount you can borrow and the interest rate you will be charged.
How much can I borrow with security?
Loan Direct provides secured personal loans up to $150,000. The amount you can borrow will depend on your financial situation.
What is an unsecured loan?
Unsecured personal loans do not require any collateral, making them less risky for borrowers but more risky for lenders. Because of this higher risk, unsecured loans tend to have higher interest rates and lower borrowing limits compared to secured loans. However, if you default on an unsecured loan, the lender does not have any collateral to repossess.
How much can I borrow with security?
Loan Direct provides unsecured personal loans up to $50,000. The amount you can borrow will depend on your financial situation. This is in some cases up to $20,000 more than you can borrow from a bank.
What Is A Secured Loan For Bad Credit?
If you’ve got a bad credit score, security can help us get your loan across the line. Most of our lending at Loan Direct is unsecured, but in some cases we do need collateral. You may need a secured loan for bad credit – but not always. It depends on how poor your credit score is, and how much you want to borrow. Secured bad credit debt consolidation loans are more common. This is because in this case you’re getting approval for someone with a poor credit score and for a large amount.
Key differences between secured and unsecured loans
Risk for the borrower and lender
With a secured loan, the borrower risks losing their collateral if they are unable to repay the loan, while the lender has a lower risk due to having security against the loan amount. On the other hand, unsecured loans do not require any collateral, making them less risky for borrowers but more risky for lenders.
Interest rates and borrowing limits
Secured loans typically have lower interest rates and higher borrowing limits compared to unsecured loans. This is because the lender has security against the loan amount with a secured loan, reducing their risk.
Repayment terms
Secured loans often have longer repayment terms compared to unsecured loans. This is because the lender may be more willing to offer a longer term for a secured loan due to the lower risk involved.
Credit requirements
Because secured loans have collateral, lenders may be more willing to offer them to borrowers with lower credit scores. Unsecured loans, on the other hand, may require higher credit scores or a stronger financial history in order to qualify. If you have bad credit and want to know if you will qualify for a low-interest unsecured loan, ask for a free loan assessment.
What type of loans does Loan Direct offer?
Loan Direct offers both unsecured and secured loans, but most of our lending is unsecured. This is because our focus is on a simple, direct lending process that allows our customers to get the cash they need quickly. Unsecured loans offer a big advantage in this way, as there is no need for us to assess collateral to estimate its value, which adds a lot of time to the loan approval process.
However, there are instances where we are unable to offer unsecured loans. This includes when the borrower has a bad credit history or wants to borrow a large amount. In these cases, we may need some security in order to get the loan. Even if you have a bad credit score, we may be able to help, it just depends on your circumstances.
