When getting a loan, you will probably be required to settle on a choice between borrowing a secured loan or an unsecured loan. How are the two different? Here is the clarification and some tips that will help you choose between the two.
A secured loan is associated with collateral – a valuable asset like a business or a vehicle. In this kind of loan, if you fail to pay back the loan as agreed, the bank can possess the asset you gave as security. The most known types of this loan are loans on cars and mortgages.
On the other hand, unsecured loans aren’t ensured by any security. In this case, the lender cannot recover the borrowed money by seizing one’s property. Payday loans and customer lending are examples of common unsecured loans.
Which one suits you best? Secured or unsecured loan?
There are several aspects one should consider before settling on either a secured or an unsecured loan. It’s normally easy to get a secured loan since it poses a low risk to the lender. For instance, a bank will opt to offer you this kind of loan if you have a poor credit history.
Fortunately, secured loans generally have reduced interest rates compared to unsecured loans. This implies that qualifying for a secured loan will save your money. What’s more, secured loans give you accessibility to a larger amount of money since they tend to offer higher loan limits.
Repayment – secured vs unsecured
If you’re experiencing difficulties in repaying your loan, it’s recommendable to first settle a secured loan as opposed to an unsecured one. For instance, you can lose your car if you default on paying car instalments in time. However, it is equally important to repay your unsecured loan on time since neglecting to make auspicious repayments on this type of loan can drag you into huge debts, since the borrowing rates are comparatively high.
To sum up, there are various types of loans, and it can be overwhelming to pick the suitable one for you. In this regard, it is recommendable to consult a knowledgeable loan officer to get adequate information on the loans you qualify for before applying.