Sometimes it can be difficult to decide whether you should take out a secured loan or an unsecured loan when you need to borrow money. No matter what the reason for your loan may be, it is crucial that you know the difference between these two types of loans before making a final decision of any kind. The more information you get on these loans, the better of a choice you will be able to make.
What is a Secured Loan?
A secured loan is simply a type of loan that requires that you put down some sort of collateral in the event that you cannot pay back the money you borrow in full and on time. This collateral must be something of significant value, such as your vehicle or even home. If you do not end up paying back the loan, the property that you put up as collateral will be taken to pay it back.
It is extremely important that you are very confident of your ability to pay back a secured loan, because otherwise you might risk losing your car or your home. The last thing you want to do is to default on one of these loans, as it might end up costing you a lot. Take the time to crunch the numbers to find out if you can realistically pay back one of these loans.
One of the worst situations that you could find yourself in is defaulting on the loan you take out, having your property repossessed, and then still owing the money you borrowed. If the property that you have put up for collateral doesn’t end up selling for enough to cover the amount of the loan, you could still owe a portion.
What is an Secured Loan?
An unsecured loan is a type of loan that does not require that you put up any property as collateral. This type of loan isn’t tied to any of your assets, and the lender will not be able to seize your property in order to pay back the loan if you default on it for any reason. While a secured loan might seem like a great overall deal, there are some things that you will need to know about them before applying.
In order to qualify for an secured loan, you will need to have great credit. Those with a very low credit score are usually rejected for secured loans. Because you don’t have to put up any of your assets as collateral if you do not pay back the loan, the lender only has your credit to go off of when determining how much of a liability you are.
Another thing to consider about secured loans is the fact that they typically come with fairly high interest rates. If you do end up getting approved for one of these loans, you can expect to pay quite a bit of interest. The interest rate that you pay for your loan will depend on a few different factors, including where you live and what your credit is like.
Lenders usually run an applicant’s credit for both secured and unsecured loans. Your credit won’t be as much of a factor in determining your eligibility for a secured loan, though it can still matter to a certain extent. Getting a secured loan is very contingent upon your credit score, so you will need to remember that when applying. Whichever type of loan you decide to apply for, you will want to make a point of finding out what your credit score is beforehand.
Which type of loan should you choose?
Only you can ultimately decide which type of loan to go with, but it’s important to carefully consider all of the information given above. If you really don’t want to risk your car or home getting repossessed, a secured loan might not be the way to go. An unsecured loan is a good option for those with good credit, though the interest you end up paying might not be worth it. Make sure that you factor all of these things into your final decision so you don’t end up with any regrets.