Personal loans – A comparative study

For personal needs, personal loans are most suitable. Available in both secured and unsecured form, this loan category provides suitable credit solutions for both short-term and long-term needs. Besides, its flexible nature, adds-up to its popularity.

The secured type of personal loans can only be availed by homeowners and property owners. Availed by pledging collateral, the advantages of this sub-type are quick attention, high credit range (as high as £250,000), low interest rates (as low as 6.7%), diverse payback rates and methods, and negotiable loan terms and conditions.

Presence of collateral ensures that the borrower pays back as agreed – an assurance for the lender. However, if the borrower defaults to payback as decided then the lender can seize the pledged collateral – a risk for the borrower. Another inseparable limitation of secured credit is that the time-consuming property evaluation process slows down the overall loan approval procedure.

The unsecured type of personal loans can be availed by all – tenants, homeowners, property owners and students as well. Availed without pledging collateral, the advantages of this sub-type are no time-consuming property evaluation procedure leading to less paperwork and quick loan approval.

Absence of collateral not only speeds-up the entire procedure, but makes it a safe contract too. That is, if the borrower defaults to payback as decided then there is no immediate risk to his property or valued item. Legal action is the only thing a lender can do against a defaulter.

The drawbacks of availing unsecured credit are limited credit range (as restricted as £25,000), comparatively high APR (as high as 41%), fixed rate plan and payback method and non-negotiable loan terms and conditions.

Based on the above-stated comparative study, it is clear that secured type of personal loans is most suitable for ‘big and long-term’ monetary requirements, whereas, unsecured type is most suitable for ‘small and short-term’ monetary requirements.