Looking to reorganize your current debt and mend your financial situation? Loans are the first places to look at as people with debt usually seek debt consolidation loans to save them from unwanted monetary burden. When talking about loans, it can be anything, unsecured loan or a secured loan, a second mortgage or a re-mortgage. Both the options are valid but it mainly depends on your individual financial situation as to which one may meet your needs.
In 2013, the Monetary Authority of Singapore introduced new rules to control unsecured borrowing to put a lid on rising household debt. Another industry borrowing limit was introduced in June 2015 in which financial institutions are not allowed to extend further unsecured credit including credit cards. The limit has been phased in four years, from June 2015 starting with 24 times a borrower’s monthly income, from June 2017 to 18 times, and from June 2019 to 12 times.
Two Types of Loans
Secured Loans
This is the type of loan where you can borrow a sum of money on some form of guarantee or collateral. In this type of loan, the lender has a claim on your collateral until the debt is paid fully. Secured loans take time to finalize as it has paperwork involved whereas an unsecured loan can take as little as two or three days. Home loans, car loans, second mortgages, and debt consolidation loans are the most common types of secured loans.
Unsecured Loans
An unsecured loan does not require any kind of collateral or security, for instance, property. This type of loan generally carries high-interest rates as there is a bigger risk to the lender. They are difficult to acquire as compared to secured loans, because of the lack of collateral, but contrariwise if you are applicable you will obtain the funds faster. Secured personal loans, payday loans, credit card loans, education loans, etc. are types of unsecured loans.
Comparison between Secured and Unsecured Loans
Interest Rates
Secured loans come with lower interest rates, on the other hand, you can find fixed and variable costs for both the loans.
Loan Terms
For both types of loans, you will find terms of between one and five years for fixed-rate loans whereas one and seven years for variable rate loans.
Risk Factor
Secured loans are considered the low risk to the creditor as they are given with guarantee whereas unsecured loans possess a great risk to the creditor as they are given without security.
Cheaper
The secured loans are among the low interest loans due to the low interest rates hence, it is cheaper. Whereas unsecured loan is not cheaper as the lender runs a higher risk of the loan not getting repaid.
You will undoubtedly save money in the long run irrespective of which option you choose to consolidate your debts. Private money lenders can help you in consolidating your debt which will result in financial relief, as well as peace of mind knowing that your debts are taken care of.