What is an unsecured personal loan?

28/04/2020
Share:

Mortgages, car loans, fixed-rate and interest-only - with so many terms being thrown around, it can be confusing as to what a ‘loan’ actually involves. To begin clearing things up, we’re taking a look at one of the most common loans we provide: the unsecured personal loan.

Read More: The Avanti Finance Personal Loan Guide, a complete overview of successfully applying for, receiving and managing a personal loan.

 

WHAT DOES SECURED AND UNSECURED MEAN?

 

Secured personal loan

A secured personal loan is a loan that you have provided ‘security’ for. This might be a car, a boat, a home, or another valuable thing that you own.

If you are unable to repay a secured loan, the security you have provided may be repossessed and sold to pay your outstanding debt.

You can usually still use the item you’ve put up as security. You won’t have to move out of your home or stop driving your car just because it is being used to secure your loan.

You may also be able to use the item you are planning to buy with the loan as security. For example, a mortgage is a loan that is secured against the house you eventually buy.

 

Unsecured personal loan

An unsecured personal loan is a loan that you haven’t provided any security for.

If you are unable to repay an unsecured loan, there isn’t a specific item that will be repossessed. However, defaulting still means a damaged credit score, additional fees being charged, and possibly even wages being garnished.

 

WHAT ARE THE PROS AND CONS OF HAVING AN UNSECURED LOAN?

Pros
  • You don’t have to have something valuable to provide as security. If you’re young or don’t have many assets yet, you can still get an unsecured loan. This lets you afford things like cars when your usual income would take a while to save up for it.
Cons
  • Unsecured loans are usually more expensive than secured ones, with higher interest rates.
  • Unsecured loans only go up to a certain dollar value.
  • If you have bad credit, you might not be able to get an unsecured loan.

If you’re asking if you should have a secured or unsecured loan, a secured loan can get you better deals. But if you don’t have security (or don’t want to risk it in the case of a default), an unsecured loan may be better.

 

WHAT CAN I USE AN UNSECURED PERSONAL LOAN FOR?

Once you’ve received your loan, you can use an unsecured personal loan for anything you like.

This is different from a secured loan, which sometimes requires you to spend it on a specific thing e.g. a car loan must be used to purchase the car you indicated in your application (usually because it’s being used as the security)

Some people use unsecured loans to pay bills, go on holiday, buy cars or consumer goods. Lots of people use an unsecured loan as a debt consolidation loan. It’s up to you!

 

WHAT CAN I USE AS SECURITY FOR A SECURED PERSONAL LOAN?

There are lots of options for security on a personal loan. The most common are:

  • A car
  • A boat
  • A house
  • An investment property

 

HOW TO GET AN UNSECURED PERSONAL LOAN

There are lots of different kinds of companies that provide unsecured personal loans:

  • Banks. These include the major banks in New Zealand (ASB, ANZ, Westpac and BNZ). They are often the first place people go to, but they have strict requirements around financial history that may result in a lot of people being rejected for unsecured personal loans.
  • Non-banks. This includes Avanti Finance and other similar, smaller lenders. Our requirements are more flexible than the big banks, meaning we can provide unsecured personal loans to customers who might not qualify for a loan with a bank, including those with bad credit.
  • Peer-to-peer lending. This includes providers like Squirrel Money. These have flexible lending requirements, but often have extremely high interest rates compared to other options.

If you are unsure of where to start, consider contacting a broker to get the widest range of options for unsecured personal loans for your needs.

Ready to get started on your personal loan journey? Apply for an unsecured personal loan with Avanti Finance now.

What is a near prime home loan?

If the bank has said no to your home loan application, a more flexible near prime mortgage could offer a solution.

What is home equity and why does it matter?

What’s the deal with home equity? And why do homeowners and lenders think it’s so important? Discover the answers and power of equity in this guide.