Do you dream of a holiday home or planning a car exchange? You must have come across the terms “unsecured” and “secured” as you consider the different financing options. In this blog post we are comparing secured and unsecured consumer credit and how to apply for one.
Secured loan in a nutshell
A secured loan is suitable for larger one-off purchases, such as changing a car or purchasing a summer cottage. A secured loan is applied to a bank and a loan negotiation is conducted to find out not only the financial situation but also the required collateral.
You need a comprehensive free collateral for the loan. For example, your own home can be used as security if it is not already secured, for example, by a mortgage. It is good to note that financial institutions evaluate collateral on a case-by-case basis and sometimes, for example, the present value of a home used as collateral must be estimated by a Realtor in order to qualify as a loan collateral.
The interest rate for the secured credit and the repayment program are agreed on a customer-by-customer basis. The interest rate is often lower than on an unsecured loan, as the collateral used to reduce the risk to the bank. In addition to the interest rate, the secured loan also has other monthly management costs and possible withdrawal costs that the bank will announce when offering the loan.
In addition to the current cost of credit, a secured loan often has other costs associated with arranging the collateral and will vary with the type of collateral used. For example, a bank may require more comprehensive insurance for real estate or housing used as collateral, and the acquisition of various certificates and other collateral arrangements often entails additional costs. Also, any broker rating for the collateral we mentioned earlier is usually subject to a fee.
The possibility of early repayment of the loan is agreed in the loan terms and conditions. In practice, this means that the terms determine whether or not you will be able to repay the secured loan before the agreed loan term expires at no extra cost. This also applies to extra repayments on the loan. For example, in the case of early repayment of a fixed rate loan, the bank often has to pay compensation.
Features of Unsecured Consumer Credit
With unsecured consumer credit, you can finance small and slightly larger purchases of home appliances to buy a second home. As the name implies, you do not need collateral for the loan and you do not have to negotiate the loan.
The interest rate on an unsecured consumer loan is determined by the loan amount and the risk assessment made by the lender. The total cost of a credit consists of interest, monthly account management fees, and possible credit opening and handling fees. The higher the loan amount, the lower the interest rate is often. However, it is good to note that an unsecured loan usually has a higher interest rate than a secured loan.
Handling of an unsecured loan is quick. At the earliest, the decision is reached within minutes of the application, but no later than the following business day. So applying for a loan doesn’t involve a heavy paper war, multiple meetings with banks, or long waits. However, some lenders may require you to provide certain documents, such as proof of salary or retirement income, to accompany your loan application.
There is no extra cost for an unsecured loan. You will only pay the interest and expenses under the credit agreement. No collateral = no collateral costs.
The unsecured loan can be repaid in full at any time. The right to early repayment of an unsecured consumer credit is defined by law, so it does not need to be specifically mentioned in the credit terms. Higher installments are also possible and will reduce the cost of the loan in euros.
Unsecured consumer credit is a flexible option
Unsecured consumer credit is therefore a viable alternative to a secured loan, as applying for one does not involve collateral arrangement costs or paperwork. Your application will be processed quickly and the loan granted will be credited to your account on the same day.
You can apply for a consumer credit of between USD 1,000 and USD 50,000, so it’s really good for a variety of purchases, such as financing an eye-opening world tour. You will receive a credit decision quickly and once approved, the money will be credited to your account on the same day. You can repay your consumer credit early or in part, at any time, without additional penalties.
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