When you are shopping around for the best possible loan, you will inevitably come across the terms “secured loan” and “unsecured loan.” It is very important that you know the difference between these two types of loans so that you can select the borrowing option that will match your needs perfectly. A surprising number of people do not know about secured and unsecured loans, or the information they possess is inadequate. When you take the time to get this information, you will be helping yourself make the right decision on a certain type of loan.
What is an Unsecured Loan?
An unsecured loan is essentially just a loan that doesn’t require any collateral, such as a car or home. This means that you won’t have to risk losing any of your property/assets if you default on the loan because you are unable to pay it off for whatever reason. These loans can be a great thing for many people who need to borrow a significant amount of money, though they can be more difficult to get than secured loans. Unless you have a fairly good credit score, it is unlikely that you will be approved for an unsecured loan.
What are the benefits of getting an unsecured loan?
There are many benefits associated with unsecured loans, including the fact that you won’t have to risk losing your home, vehicle or any other major assets if you cannot pay back the money you borrow. While it’s true that you will most likely pay a higher interest rate on an unsecured loan, it is far less of a risk because no collateral is required.
What is a secured loan?
A secured loan is a type of loan that requires some sort of collateral, whether it is a house, vehicle of some kind, stocks, or some other asset that has an equal or greater value to that of the loan amount. Secured loans are typically easier to get than unsecured loans for those who have bad credit, simply because you will be putting collateral down. If you are unable to pay back the loan, the property/assets you put up as collateral will be seized by the lender.
One example of a secured loan is a mortgage. If you fail to keep making timely payments on this type of loan, your house will be foreclosed on by the bank. An auto loan is another example of a secured loan. Those who do not pay back their auto loan on time will have their vehicle repossessed.
What are the benefits of getting a secured loan?
The biggest benefit of a secured loan is that it’s typically easier to get if you have a less than great credit score. You will also want to take into consideration the fact that you’ll most likely pay a lower interest rate than with an unsecured loan. If you have the assets to put up as collateral, this is definitely an option that you should at least consider. While the lender will still most likely run a credit check on you when you apply for a secured loan, the standards are significantly lower.
Which type of loan should you get?
It is important to consider a number of things when trying to decide whether to get a secured or unsecured loan, such as how big of a risk you are willing to take. Secured loans come with a much higher risk, as there is always the chance of having the assets you lose as collateral taken from you (if you default on the loan.) You will definitely want to take the time to look into each type of loan so you can make the best possible decision.
You will also need to consider what your credit is like. If you don’t have very good credit, you might want to try for a secured loan. Those who have good credit might want to go for an unsecured loan. It is fairly rare for people with bad credit to get approved for an unsecured loan, but it’s not entirely out of the question. The more you learn about these types of loans, the better of a decision you will ultimately make.