Loan: Advantages and Disadvantages

If you're struggling to overcome financial difficulties and debt, you might consider taking out a loan, but there are so many different kinds of loans available that it may seem difficult to decide which type of loan will work best for you. Each has their own advantages and disadvantages, so here is a quick rundown of the loans that are available and most commonly opted for and what benefits they entail.

Secured Loans: a secured loan is simply a loan that is 'secured' against an asset. This is known as 'collateral' for the loan. In many scenarios, the home is used as collateral for a secured loan.

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Interest rates for secured loans are often lower as they are considered to be 'low-risk' by the lender. You can borrow greater amounts. Repayment of the loan can be spread out over a longer period.


You will lose whatever is used as collateral if you default upon loan repayments. You may get a bad credit rating.

Unsecured Loans: unsecured loans are loans that do not require collateral.


Unsecured loans are lower risk for the borrower as they will not lose a valuable asset if they struggle with repayments.


Smaller amounts are offered and the repayment period is significantly shorter than that of secured loans. Defaulting or falling behind on repayments can result in court judgements. If the matter goes to court, they have the ability to change the loan to a secured loan, resulting in a loss of assets in order to repay the loan.

Home Loans: home loans are simply mortgages and are used to pay for a home over an extended period of time.


When your mortgage is paid off in full, you own your home.


Mortgages required a deposit which is normally a specific percentage of the overall value of the house. If you fail to keep up with mortgage payments, your home may be repossessed.

Debt Consolidation Loans: this kind of loan is used to 'consolidate' all of your debts into one, instead of having separate debts. Money given to the borrower is instead transferred directly to the creditors and the debts if repaid to the new lender.


Debt consolidation loans can help to reduce monthly repayments. Payments are spread out over a longer period of time. Interest rates are reduced


Longer repayment period means more interest to pay.

Pawnbroker Loans: similarly to a secured loan, a pawnbroker loan is a loan that requires a valuable asset as collateral, but this can be almost any suitable item of value like jewellery, watches, antiques, coins and bullion or scrap gold.


No credit checks are necessary to get a loan from a pawnbroker. Getting a pawnbroker loan is often very fast. You can borrow very little or you can borrow significantly more. Pawnbrokers do not require information about what you intend to do with the borrowed amount. Online pawnbrokers like can offer twice as much for your valuables as highstreet pawnbrokers.


You will lose your asset if you default on repayment after the term has ended or if an extension cannot be agreed upon. Interest rates can be high depending on the pawnbroker.

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