Secured vs. Unsecured Loans: What is Right for You

When you find yourself in a financial emergency situation and need to apply for a loan, you will most likely need to know whether to go for a secured or unsecured loan. However, only a few people understand the difference between a secured and unsecured loan and which one suits their unique needs. In this article, we shall explain the difference between the two types of loans and also help you choose between a secured and unsecured loan.

What is a Secured Loan?

A secured loan is a type of loan that is usually protected by some sort of collateral or an asset. Some of the items that can be used as assets include your car, home, or anything of value. The lending institution will hold the title of the item until you repay the loan amount in full plus accrued interest. Other items such as bonds, stocks, and personal property can also be used to secure a loan.

This is always one of the best ways of borrowing huge sums of money since the lender has some form of security and an assurance that the money will be repaid in full. Putting your home or car in line is a guarantee that you will do anything possible to repay the loan on time. Secured loans offer loans at lower interest rates and extended repayment period.

What Is an Unsecured Loan?

An unsecured loan is the opposite of a secured loan meaning that it doesn’t put the borrower’s assets in line. The only surety the lending institution has that the borrower will pay back their loan is the borrower’s word and commitment. Some of the common types of these loans include no credit check loans, student and personal loans. Signature loans and credit cards are also another type of unsecured loans. Sometimes an individual may still qualify for a secured loan even if they are turned down for an unsecured loan as long as they have something to offer as collateral.

Secured vs. Unsecured: Which One Should You Choose?

Typically, if you want to borrow a small amount of money over a short period, then unsecured loans offer the best option. They are less risky for the borrower since your assets aren’t attached to the loan as collateral. You should also go for the unsecured loans if you have an objective of rebuilding your credit history since the loan is short-term.

However, you should consider a secured loan if you want to borrow a substantial sum of money at lower interest. The lender is willing to offer you a significant amount of money since he/she knows that they won’t lose their money even if you fail to repay the loan. Always evaluate your circumstances and needs before you decide on the type of loan to go for.


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