5 Things You Need to Know about Secured and Unsecured Loans

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You get a loan every time you borrow money from someone, whether from the bank, a friend, or even your credit card. Now, when dealing with a friend, there is a good chance they will lend you the money with only your word that you will pay them back, which is enough security.

However, when dealing with financial institutions, you may be required to put up an asset as security for the money you borrow. That is essentially the difference between unsecured and secured loans.

24 million Americans take up personal loans each year. Whether those loans are unsecured or secured depends on the individual and the lending facility or institution they approach.

5 Things You Need to Know about Secured and Unsecured Loans 2

Types of Unsecured Loans

An unsecured loan has no collateral tied to it. The lender cannot automatically and legally seize your property should you fail to pay them back.

A mortgage loan is typically secured with the property to give you a clear picture. If you fail to pay your mortgage, the bank can legally take your house to recoup their money. That is not the case with unsecured loans.

Unsecured loans have nothing, in particular, pledged as collateral, and as such, they are a lot riskier for the lender but less risky for you, the borrower, since the consequences are not as apparent should you fail to pay.

There are many different types of unsecured loans:

Things such as loans from your friends and family fall under this category. Of course, the lender has other options they can take should you fail to pay them back. Most wage garnishment).

On the other hand, secure loans come with some collateral from you, the borrower. This collateral could be your house, car, a piece of land, or any asset you own that can easily cover the full amount you should fail to pay the loan.

Since these loans are much safer for the lender, they usually have favorable rates. The most common types of secured loans include:

These loans are usually much easier to get, provided you have the collateral to cover them. That is why about 10% of Americans take them out each year.

an unsecured loan with bad credit is not impossible, it is quite difficult. The loans you will likely get will have stringent payment terms, including very high interest rates, because you are a risky borrower. As such, people with bad credit should genuinely consider taking up secured loans using their assets such as:
  • RV Title loans
  • Car Title loans
  • Big Rig Title loans

This is the fastest and most convenient way to get around your bad credit issues while you work on repairing that image. But remember, you have to pay back the secured loans within the term period and in keeping with the agreement; otherwise, you will lose your collateral.

Where Can You Get Unsecured and Secured Loans?

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There are several options here, the most popular of which are banks. However, that does not mean that they are your only option when it comes to getting either an unsecured or a secured loan. Banks happen to be some of the strictest lenders available today. They are, however, more reliable and have a much bigger lending capacity than most.

Other options include:

You could also always consider borrowing from family and friends, although you are advised not to. Money and family typically do not mix well, especially when you fail to repay them.

Which Type of Loan Should You Consider?

The answer to this question depends on your financial situation, discipline, and needs. If you only need a little cash to get you through a rough patch, then an unsecured loan is the way to go. But if you are looking for something bigger, something with which you can undertake a worthy financial course such as financing a business, you need a secured loan.

This is mostly because they are easier to get, and lending institutions that offer them have a much larger lending capacity. This means that you will be able to borrow more and have a better chance of achieving whatever financial goal drove you to borrow the money in the first place.

Remember, before you borrow any money, have a solid plan of how to repay it. This way, you maintain your credibility if you had borrowed from friends, and you keep your good credit rating if you had borrowed from a financial institution.