Are you relying on government benefits for survival? Generally, one receives benefits under unemployment or low income. It helps one meet the essential requirements without affecting the basic savings. However, sometimes the amount you get from there is not enough.
You need more to sustain the additional expenses. What do you do in such circumstances? Tapping long-held funds may affect the ROI you get. Instead, check the secured and unsecured loans for your needs. However, choosing one may be challenging. The blog details these aspects and helps you pick the right one.
What does a secured loan imply?
A secured loan is a financial facility that helps you get an amount by putting your asset as collateral. The collateral acts as security, meaning you may lose it if you cannot pay the loan. However, a secured loan helps fetch better interest rates. You can exercise more flexibility over the loan payments.
It is an ideal approach for individuals with low income and bad credit seeking a higher amount. You may need it for home renovation, financing surgeries, and other huge bills. The loan repayment term is 8-10 years. You can spread the payments over the years. Paying it over a long term may help you improve your credit history.
Example- secured car loans, mortgage, home improvement loans.
What are the Pros and Cons of a Secured loan for unemployed individuals?
Secured loans may be a good and comfortable option for those with limited income. Let’s understand the pros and cons of each aspect:
Pros of getting a secured loan with benefits
1. Easy loan approval
You may get instant approval on secured loans for benefits in the UK from a direct lender online.
It is because the loan involves pledging an asset as collateral. The asset value should exceed the amount you need. It helps you get an instant approval.
2. Helps borrow a higher amount
Unlike unsecured loans, you may get a higher amount despite bad credit or unemployment with secured loans. It is because the approval is solely attached to the collateral value. It helps you meet the goals on time.
3. Low interest rates
Yes, the interest rates you get with secured loans are significantly lower. It eventually reduces the total amount you pay on the loan. In this way, it is an affordable option. However, you still need to repay the dues. Keep your income stable unless you repay the dues.
Cons of getting a secured loan with benefits
a) Risk of loan default
Borrowing a higher amount with limited income increases the risk of loan default. You may lose your asset if you cannot keep up with the payments.
b) Pay more interest
Choosing a long repayment period means paying more eventually on the loan. Moreover, you remain in debt for long years. It may affect other life goals. Thus, choose the repayment structure wisely.
c) Impact on credit score
Missing the loan payments may impact your credit score. Moreover, it may also affect your finances, making it impossible for you to secure finance within the same period. Thus, you should set direct debits to avoid missing payments. If you cannot pay, discuss it with your creditor.
What are the Pros and Cons of an Unsecured loan for unemployed individuals?
Now, you can see the pros and cons of secured loans for benefits payment or as an unemployed person. Here is how getting an unsecured loan may prove helpful for people on benefits:
Pros of getting an unsecured loan with benefits
a) No collateral required
The most significant benefit of getting an unsecured loan is that you do not need to stake your precious belongings as collateral. Instead, you get approval according to the affordability. It could be challenging to get one with benefits as one lacks a regular income. Moreover, the interest rates are high on such loans due to the lack of security involved.
b) Quick loan turnarounds
Getting an unsecured loan involves a less cumbersome loan approval process. The documentation and other formalities are less in comparison to secured loans. Therefore, you may get the loan in 24 hours instead of weeks or days. It is ideal for those who need a huge sum urgently to finance their requirements.
c) Fixed interest rates
The interest rates remain competitive but fixed on unsecured loans with benefits. It grants you the opportunity to set direct debits and design a budget for the repayments. Identify how much you need and borrow only that amount. It reduces the extra liabilities on the interest costs.
Cons of Getting an unsecured loan with benefits
a) Harder to get approved
Although the loan eliminates the risk of losing an asset, it is hard to qualify for. It is because most loan companies require the borrower to have a fixed income with stable finances and debts. However, unemployed individuals living on benefits cannot prove that. In that case, the loan provider may ask for security or a guarantor. Thus, the additional requirements may make it challenging for you to meet the needs.
b) Interest rates are high
With no collateral and good income involved, the loan provider may charge high interest rates. It may make the loan costlier than ever. You can try to offset the risk by co-signing the loan with someone with better finances and a better credit score. It helps you fetch a lower interest rate and pay a lower amount in total. It will be better because if you miss a payment here, it may lead to penalties. It may also attract a CCJ or debt collectors, which may prove worse for your finances.
c) Limited options available
You need to find out the specialised loan companies providing loans on benefits. It is harder to find as only a few exist. Identify the options available and compare the quotes. Fetch the one that meets your conditions.
Which is a better option – Secured or Unsecured?
There is no one-size-fits-all approach. However, you can break it this way:
1. Unsecured loans are usually the safer option if you are on benefits. It does not put your home and other assets at risk. However, the approval could be difficult, and interest rates remain high.
2. Secured loans can offer lower interest rates but come with a risk of losing your asset forever. It is especially sensitive under unemployment conditions. Tap it only if you have an offer letter in hand.
