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The difference between secured and unsecured loans

by , 22 August 2014
The difference between secured and unsecured loans
Whether you want to buy a new car, purchase a new house, or attend an expensive college, you most probably need to obtain a loan from a bank or a private lender.

You can opt for secured or unsecured loans, depending on what the bank or lender offers you and on the amount of risk you are willing to take.

Secured loans are often the most affordable option if you're looking to borrow a larger amount. However, they come with higher risks than unsecured loans.

Here are the main differences between secured and unsecured loans.

 
Secured loans is a loan that is backed by an asset, such as a piece of property. This property is collateral for the loan, and if the loan isn’t repayed as agreed, the lender can take possession of the asset.
 
The amount you can borrow, the interest date and the term to pay back the loan are determined individually, based on your particular circumstances and assets.
 
Secured loans are usually the easiest way to obtain a large amount of money. Banks are not likely to lend you large amounts if they’re not sure you can pay them back. That’s why they need property or other collateral as a guarantee that they will get their money back.
 
Secured loans usually have lower rates and longer payment terms than unsecured loans. Many people choose to get secured loans because their bad credit history doesn’t allow them to obtain an unsecured loan.
 
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Unsecured loans are more accessible than secured loans– anyone with a decent credit score can apply for such a loan.

 
Unsecured loans include credit cards, student loans, and personal loans. Since lenders are risking more with unsecured loans, the interest rates are usually higher.
 
The lenders use a set of criteria to determine whether you are eligible and are able to pay back the loan.
 
If your credit history is less than perfect, you will probably have to choose a secured loan.
 
While unsecured loans are easily available, they cannot provide an amount as large as secured loans can. Secured loans take longer to be approved, but their interest rates are lower.


The difference between secured and unsecured loans
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