Secured VS Unsecured debt consolidation loans in South Africa
Unsecured debt consolidation loans are a form of financial service extended to people with multiple debts, allowing them to combine all of their debts into one new loan. While a debt consolidation loan can be used to consolidate different types of personal debts, the most common are credit card debts.
Debt consolidation loans are intended for persons with multiple credit cards who are struggling to make the minimum monthly repayments to their creditors. The two major types of debt consolidation loans include secured loans and unsecured loans. Here are all the important details you should know about Secured VS Unsecured debt consolidation loans.
Secured VS Unsecured Debt Consolidation Loan: What is the Difference?
Secured debt consolidation loans are connected to an asset, such as a house, a car or any other piece of property. With a secured loan, the lender can take the possession of the collateral if you do not repay the loan as required. Typical examples of secured debts are car loans and mortgages.
Unsecured Debt loans are not protected by any collateral. If you default in repayments, the lender cannot automatically take your property. Common examples of unsecured loans include personal loans, student loans and credit card loans.
Secured debt consolidation loans Vs. Unsecured Loans: Which is Right for You?
There are many factors to consider when choosing between a secured and unsecured debt consolidation loans in South Africa. A secured loan is usually easier to get, as there is less risk to the lender. If you have a bad credit score, or you are rebuilding your credit rating, lenders will more likely recommend a secured loan. Secured loans also have lower interest rates. That means, taking out a secured loan is a smarter money management decision when compared to an unsecured loan. Also, secured loans tend to offer high borrowing limits allowing you to gain access to more money. The maximum amount of money you can borrow is determined by the resale value of the asset pledged as collateral.
For unsecured loans, there is no tangible item on the line as collateral. If you fail to pay the loan, the loan can get a legal judgment against you that can prevent you from selling your home. They may also garnish your wages or take any other legal actions to recover their money. As a result, unsecured loans are riskier to the lenders, and higher interest rates are charged when compared to the secured loans. Additionally, a lower borrowing limit is allotted, and the borrower is only given a short period to repay the loan.
Secured or Unsecured Loans: Which should be Paid First?
If you have both a secured and unsecured debt consolidation loan, and you are having trouble making repayments, you may say which is more important to pay first. Convectional says, you should pay back the secured loan first to avoid losing the asset pledged as security. However, if you are not repaying your unsecured loan, you can quickly find yourself deeply in debts since the interest rates are too high.
If you are in doubt, consider consulting a professional immediately, especially if you are running into trouble. Understanding the differences between a secured debt consolidation loan and unsecured debt consolidation loan is vital to the success of your financial future. Your credit rating can improve significantly by having a mix of both secured and unsecured debts, and using both wisely.