Secured vs unsecured personal loans

Oxford Finance have recently launched a new loan product offering – Unsecured Personal Loans. A convenient and flexible loan solution with a fast online application and approval process.

So, what is an unsecured loan? How does it differ from a secured loan? And is it the right fit for you?

In this article we outline the two loan types, each with its own set of characteristics and considerations. Read on to learn the differences between secured vs unsecured personal loans and make an informed decision on the best loan type for you and your finances.

Secured Personal Loans

Collateral required – Secured personal loans require backing by an asset as collateral against the loan. For Oxford Finance this generally would have the backing of a car or a property.

Lower interest rates – Because the lender has the security of your collateral, secured loans typically come with lower interest rates compared to unsecured loans. This is because the risk to the lender is lower.

Higher borrowing limits – Secured loans often allow for higher borrowing limits as the collateral provides assurance to the lender.

Longer repayment terms – These loans may have longer repayment periods. This can make monthly payments more manageable but may result in higher total interest payments over time.

Risk to collateral – If you default on the loan, you risk losing the asset you used as collateral.

Unsecured Personal Loans

No collateral required – Unsecured personal loans do not require any collateral. There is a lot of trust with this type of loan, with approval being based primarily on your creditworthiness and ability to repay the loan.

Higher interest rates – Since the loan is collateral-free, lenders perceive unsecured loans as riskier. Therefore, interest rates tend to be higher compared to secured loans.

Lower borrowing limits – Typically, the amount you can borrow with an unsecured loan is lower than with a secured loan because the lender has no asset to recover in case of default.

Shorter repayment terms – Repayment terms for unsecured loans are usually shorter than those for secured loans, which can mean higher monthly payments but lower overall interest costs.

Credit requirements – Lenders may have stricter credit score and income requirements for unsecured loans because they rely more heavily on your financial stability and credit history.

Secured vs unsecured – which loan should you choose?

Consideration 1: Loan amounts

Consider how much you need to borrow – a higher loan limit is likely offered by a secured loan vs an unsecured loan.

Consideration 2: Interest rates

Compare the total cost of borrowing (including interest rates and fees) for both types of loans.

Check out our easy to use Secured Personal Loan calculator, or Unsecured Personal Loan Calculator to see what your repayments could look like.

Consideration 3: Credit history

Your credit score and financial history will significantly influence your eligibility, and the term offered by both secured and unsecured loans.

Consideration 4: Convenience

If you are in a situation where you want to borrow a smaller amount of money for things such as a holiday, education, or to cover unexpected expenses without the need for collateral, then an unsecured personal loan could be the right fit for you.

Talk to the experts about your loan requirements

If you’re thinking about unsecured personal finance, or have any questions around applying for finance, get in touch with our friendly team at Oxford Finance, we’re here to help.

Before choosing any type of loan, it’s important that you carefully assess your financial situation, your budget and needs. Talk to a financial advisor or check out useful websites such as MoneyTalks to ensure you’re making an informed decision.

If you have a loan with Oxford Finance and are experiencing an unforeseen change in your financial situation, don’t leave it too late to contact us, or, find out more about hardship options on our website.

Get in touch with us about your loan queries today.