Most of us need to take out a mortgage to buy our first property. A mortgage is a cheap loan if you compare it to a loan without a security. The percentage difference can be as large as 15% and then we talk exclusively about consumer loans. If we include credit cards in the math we are talking about a percentage difference of more than 20%. Many people scratch their heads wondering why interest rates on unsecured loans are higher than collateral loans. The answer is not always as obvious.
The reason why there is a large percentage difference between a secured loan and an unsecured loan is simply because the bank takes on more risk. A loan without collateral is a loan where you do not need to pledge the loan. If you are unable to pay your installments, the bank has no assurance that they will get their money back. As the risk is higher, it is quite natural that the bank will pay better.
With a mortgage, the bank can actually sell your property to get their money.
In addition to the risk, the loan amount is usually higher when you apply for a loan with collateral. With a higher loan amount and a longer repayment period, the interest rate will be adjusted accordingly.
Take your time
To find a good loan it is important to take the time. You should use the time to compare loan offers from different providers. As soon as you get an overview of what offers are available on the market you should double check that you can actually afford to sit with the loan. Of course you can afford right now, but what happens if interest rates increase by 1%? These are questions you must consider before applying for a loan. Whether it is a mortgage or a consumer loan.