When it is time to apply for a loan, you might be wondering whether you should get a secured or unsecured personal loan. There are reasons for both, but you will want to learn about the advantages of each before you make your decision.
What is a Secured Personal Loan?
A secured personal loan is a loan that has some sort of collateral attached to it. This collateral is some tangible asset that has significant value. The most common types of collateral are homes and cars. These are used when obtaining a mortgage or a car loan.
Of course, once you own your car or home outright, they can be used as collateral for other types of personal loans, but take care. If you use an asset you own as collateral for a personal loan, and you default on the loan, the lender can, and normally will take possession of the asset. That means you could lose your car or home, and that could cause major issues in your life.
What is an Unsecured Personal Loan?
An unsecured personal loan is just the opposite of a secured personal loan. No collateral is needed, so you would not use one of your assets to secure the loan. Instead, obtaining the loan is based on your credit score, job history, and ability to pay it back.
This means that if you default on the loan the lender can’t automatically take your assets to satisfy the debt.
The Advantages of Secured and Unsecured Personal Loans
1.) Secured loans are easier to be approved for – Because a secured loan uses a piece of your property as collateral, the leader feels there is less risk to them as they can repossess the property. This means they are more willing to give a secured loan to someone with less than perfect credit.
2.) Secured loans normally have lower interest rates – The second advantage of secured loans is that the interest rates tend to be lower than those for unsecured personal loans. This, of course, depends on your credit score and history, but it is normally the case.
3.) Unsecured loans are quick to obtain – You can typically be approved for an unsecured loan very quickly. Unlike a secured loan such as a mortgage, the turn around time is normally just a couple of days. If you need money quickly, this makes an unsecured loan a great option.
4.) Unsecured loans have less paperwork – Unsecured personal loans have much less paperwork than say a mortgage. This is due to the fact that the lender will make their decision on your credit history and doesn’t need to spend the time determining the value of your collateral.
5.) Unsecured personal loans allow you to use the money for whatever you want – Unlike a car loan or mortgage or other secured loans, an unsecured personal loan can be used for anything you want. Once you are approved and have the money, you can choose what to do with it.
There is a time and a place for both secured and unsecured personal loans. You need to take into consideration the advantages of both before you make your decision on which one is right for you.
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