If you’ve ever looked into taking out a personal loan, you might have heard them being referred to as “secured” or “unsecured”.
But what does that mean? And why does it matter?
Here’s a rundown of what you need to know before you apply for a personal loan.
An unsecured personal loan is a loan for which the lender has not taken any security.
When you have a loan that’s secured against a car, for example, the lender can take the car and sell it if you do not make your repayments.
But when the loan is unsecured, the lender is not holding any collateral.
People might apply for an unsecured loans if they don’t have security to offer, or security that is suitable for the lender.
In New Zealand, you can take out an unsecured personal loan from a bank or a non-bank lender.
The process is generally straightforward – you make an application, the lender assesses it and, provided the application meets their criteria, approves the loan for you to repay over time, on the agreed terms.
Different lenders have different processes, but at better finance™️, we keep it really simple. You provide us with the required information via an online application, which is handled by our team. Our expert advisers are on hand to help you make great borrowing decisions, and you’ll usually hear pretty quickly whether your application is successful.
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Your credit score and credit history can affect a loan application. Generally, lenders have more appetite to lend to people who have good credit, and you may be able to access better interest rates, too. That’s not to say that you can’t get a loan if your credit isn’t so good. The better finance™️ team can talk to you about your options.
It’s important to only borrow an amount that you can comfortably repay and that is enough to meet your needs. We can help you work through this, but it’s worth giving some thought at the outset to your budget and how much disposable income you have each month that could service a loan. You might need to think about costs that pop up less regularly, like kids’ sports costs or trips you have planned, as well as ongoing expenses and things such as memberships and other planned spending. Lenders won’t approve loans if you cannot prove that the repayments are affordable based on your income and expenses.
A loan can be a great financial tool to help you get where you want to be, but it’s important that it fits into your overall financial picture. Take some time to consider your current financial situation, your budget and what might be ahead in your future. Your loan may be repaid over a number of years, so it’s not just your current circumstances that you’ll need to think about.
There are a few things to weigh up when it comes to taking out an unsecured personal loan.
Pros
It may be more straightforward because your lender won’t need to assess any assets that you’re offering as security. The application is assessed on your credentials.
A loan may help you cover an unexpected or urgent expense or something that’s otherwise just not in your budget right now.
A loan can help spread a big cost, which can help from a cash flow perspective.
When you pay back a loan on time, it may help build your credit score.
Cons
An unsecured loan will generally be more expensive, in terms of the interest rate charged, than a secured loan. That’s because the lender doesn’t have the security to fall back on if you don’t meet your obligations.
A loan can become a problem if you borrow more than you can afford or if your circumstances change. Lenders in New Zealand have responsible lending obligations to meet to ensure they don’t lend money that you can’t afford to repay, so it’s important that you give accurate information during the application process.
Your loan will probably be repaid over a year or more, so you’ll need to factor it into your financial decisions in the future.
There are a few things you can do to make sure you stay on top of your loan.
If you set the payment up for the day after you’re paid, you’ll know there is money in your account to cover it. Missed repayments can mean additional fees and affect your credit score.
If you have a number of loans, you might consider debt consolidation. This allows you to roll a number of debts into one, which can make your loan repayments easier to manage.
Could you meet your obligations if something happened that meant you could not work or lost your job? It may be worth thinking about insurance to protect your income and ensure you’ll be able to meet your loan repayments, no matter what.
Keep an eye on your overall financial wellbeing. If you have any questions about your lending now or in the future, the financial advisers at better finance™️ are here to help.
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If you’re looking for a loan to help you make a purchase or cover an expense, an unsecured personal loan could be worth considering.
There are a few factors to weigh up, and the appropriate solution will depend a lot on your personal circumstances.
If you’d like to see what might be available, get in touch with the team at Better. Our smart online process is straightforward with a personal touch.