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If you’re looking for a loan, there are normally 2 types to choose from:
When you apply for an unsecured loan, the lender will assess your creditworthiness, income, and financial health. You won’t need to provide collateral, such as a property.
You’ll still need to enter into a loan agreement and make regular repayments over a set period until the loan and interest is repaid to the lender.
Based on your financial situation, the lender will work out how much you can borrow, and what the terms of your agreement will be.
Explore: Quick guide to personal loans
A secured loan is money borrowed, or secured, against an asset. The lender requires some sort of security in case you can’t repay the loan. This could be your home, but also other assets like a car or even jewellery.
A mortgage is a type of secured loan. Your property is a form of security and can be repossessed and sold if you don’t meet your mortgage repayments. Because of this security, you may get a lower interest rate and be able to borrow more compared to an unsecured loan.
An unsecured loan doesn’t require any security. The lender can’t take away any of your assets if you can’t repay the loan.
But because there’s more risk to the lender, you’ll probably pay a higher interest rate, and not be able to borrow as much.
Find out more: What are the different types of loans?
Unsecured loans can include:
You can use an unsecured personal loan for expenses such as buying a car, paying for a wedding or a holiday, or consolidating debts.
Because an unsecured loan doesn’t need an asset as collateral, the application process is generally simpler and quicker. You can get your money earlier and have more flexibility on what you spend it on, and how long you want to take to repay it.
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As with any loan, late or missed repayments can negatively affect your credit score. You may also face late payment charges.
Your credit history is also an important factor when applying for an unsecured loan. You’re more likely to be approved if you maintain a good credit score.
Pros
Cons
If you’re unsure about whether a secured or unsecured loan is better for you, think about what you need the money for.
An unsecured loan can be useful if you need money quickly, as the application process is faster. Unsecured lending, such as a personal loan, can allow you to borrow money without the risk of losing your home or assets.
A secured loan may suit you better if you already have an asset. For instance, if you want to pay for a renovation, you could take out a home equity loan against your property. This may allow you to borrow more, and at a better interest rate.
As with any financial decision, it’s best to assess your financial situation and needs, and weigh up your options first.
Put your plans into action with an HSBC Personal Loan.
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