At some stage, most people need to obtain credit to help purchase a car, home, etc. When securing credit/a loan, loans fall into one of two categories, secured or unsecured loans. Unsecured loans are generally for smaller amounts over shorter terms, whereas secured loans are invariable for larger amounts and can be over longer terms.
Secured Loans
A mortgage is the best example of a secured loan, where the finance provided by the lender is secured on the associated property/asset i.e., your home. In effect, the property is the security or collateral for the loan. If you fail to repay the loan the lender may repossess the security attached to your loan/mortgage. If the asset the loan is secured against is repossessed, this will be recorded and reflected on your credit report and will adversely affect your ability to obtain credit in the future. However, the process to repossess a family home is very slow and difficult for any lender and involves a slow and tedious process through one’s local district court. The County Register invariable decides on the matter and is slow to allow a lender to repossess a family home if the borrower can demonstrate they are making a reasonable effort to engage and make reasonable payments.
Another example of a secured loan is a car loan frequently structured as a Hire Purchase (HP) or Personal Contract Plan (PCP), where the finance provided to purchase/rent the car is secured over the car. If one falls behind on their car loan repayments, and if less than one-third of the total Hire Purchase price has been paid, then the finance company can be subject to providing the customer with adequate warning and notice, repossess the car without any court involvement. If the borrower has over half the total hire purchase price paid, then the vehicle can be returned to the lender as a full and final settlement.
Unsecured Loans
Unsecured loans have no associated security, best examples of unsecured loans are; student loans, personal loans, and credit cards. Such loans are frequently used for home renovations, holidays, car repairs, educational costs, and debt consolidation where interest is charged on the debt outstanding. Interest rates on unsecured loans tend to be, on average, higher than on secured loans. As with secured loans, one’s repayment record and history will be displayed on one’s credit report which any lender will review before deciding to sanction any new loan. Missed payments, default notices, etc all adversely affect your credit history and ability to obtain credit.
Before signing up for a loan, know if the loan is secured or unsecured, compare the interest rates charged (APR %), and only borrow what you need and can afford to pay back. Ensure you are comfortable with the weekly or monthly repayments, the repayment time frame (i.e., loan term), and the total interest paid over the life of the loan. Entering into a loan agreement brings with it serious contractual obligations. Therefore, it is vital you know and understands what you are committing to.
SmartLoans.ie provides personal and car loans, providing a quick/instant credit decision for all individuals with either a good or bad credit history. SmartLoans.ie is regulated by the Central bank of Ireland.
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