Are you comparing secured vs unsecured loans? If you're in need of financial help they can both offer you funds but which is best? Let's take a closer look.
Did you know that in the last year, more than 34% of Americans have taken out personal loans?
When you decide that it's time for you to borrow money, you may have to decide between secured vs unsecured loans. What exactly is the contrast between these loans?
We've created a quick guide to help you better understand. Keep reading to learn more!
What's a Secured Loan?
A secured loan is a type of loan that's backed with collateral. To know more about a secured loan you need to know what is Collateral and why is it so important. In simple words, a collateral is something that you own that's valuable. Some of the most often used pieces of property that are used for collateral are cars, jewelry, and boats.
When you apply for a secured loan, the company or person providing you with the loan will hold onto the collateral's deed (or the title). If you are unable to pay the loan back, the entity that lent you the money will take possession of whatever you place up for collateral.
Once possession is taken of the collateral, there's a chance that the lender will sell the collateral and use it to pay off any of your outstanding debts.
What's an Unsecured Loan?
An unsecured loan is a money that you're able to borrow without using anything as collateral for the loan.
Typically, with unsecured loans, there will be a smaller amount of money that you're able to borrow. You may also have to have a high credit score to qualify for the loan. Don't be surprised with the interest rate of your unsecured loan is high.
Some of the most common types of unsecured loans you can expect to see are personal lines of credit, as well as credit cards.
How to Decide Which Loan Is Right for You
A secured loan is likely a lot easier for you to earn, as there isn't as much of a risk for the lender to allow you to borrow from them. If you have a limited credit history or you have a low credit score, a lender will be much more likely to provide you with a secured loan.
Plus, secured loans are great if you're looking to pay less interest on your rates. In the majority of borrowers, people are able to borrow more money with a secured loan.
However, there are unsecured loans on the market that offer lower interest rates than what you may find with a credit card. Plus, if you're looking to finance a specific purchase, an unsecured loan can help to prevent you from overspending.
Understanding the Difference Between Secured vs Unsecured Loans
Both secured vs unsecured loans offer their own unique advantages and disadvantages. The type of loan that's best for you will depend on your unique financial situation.
Just be sure that before you sign any papers, you have a solid understanding of the repayment period, the interest rate, and the amount that you'll be required to pay each month on loan.
