You may wonder if a secured or an unsecured loan is better for you. Either choice has its benefits. Quite simply, a loan can help to make things happen where otherwise you would be spinning your wheels. Without the loan, you might have to wait months or even years to make your dreams come true. There are many benefits to getting either a secured or unsecured loan, but each are a bit different. You’ll likely want to choose them under specific circumstances too. Here is some helpful information to guide you!
So, what exactly is a secured loan? This is a loan where the person borrowing offers an asset such as a car or property as collateral that becomes secured debt. This debt is secured against the collateral (car, property or other asset), so if the borrower defaults, the creditor now possesses the asset. This helps the creditor obtain some of the amount that was originally lent, in the form of an asset. Secured loans include a mortgage loan, home equity loan and a car loan.
Here is what you should know about an unsecured loan: this is offered to the borrower without an asset. Some borrowers prefer to choose an unsecured loan because they may not have an asset to offer for a loan. Or they may have an asset that does not equal the value of the loan they would like. Quite often the rates of an unsecured loan are reasonable. They are also determined according to your credit rating and previous credit history. Unsecured loans include payday loans and personal loans.
Pros for a secured loan:
A loan is offered, in exchange for offering the asset as collateral. For some people who do have an asset such as a car, house or other asset such as a boat, this is an ideal choice to make. A borrower can feel more confident that they will have the chance to get a loan, because they have an asset to put up to secure it. They know that a creditor is going to feel secure they will be paid back, because they are offering their asset to promise the loan.
Borrowers do find they can be offered good terms on a secured loan, because they are putting up an asset as collateral. A borrower really appreciates being given a lowered interest rate and lending friendly terms by which to repay the loan.
There are times choosing a secured loan gives a borrower a chance to get a loan, where otherwise they might have a challenging time getting a lender to give them another type of personal loan.
Pros for an unsecured loan:
The interest rate on unsecured loans is often reasonable, though sometimes it may be higher than for a secured loan. A secured loan can help you pay off a debt that feels overwhelming such as credit card debit. It also can help you take care of an unexpected home repair that is urgent. A good credit score is important when obtaining an unsecured loan, as you are not giving a creditor an asset. Thus, your credit score and credit history are essentially your “asset” and guarantee that they will be paid back in a timely manner.
Reasons people would want a secured loan:
A family might choose to take on a secured loan, to do major repairs to a home. They may want to add additional rooms so an elderly relative can move in or they are having more children.
Someone who has recently graduated from college may have a car as their major asset. With this asset, they can obtain a loan to get a down payment on their first apartment. If they have just started a new job and do not have a paycheck coming in yet, then choosing to do a loan in this way offers them an opportunity to start the new job and have a place to live close to work.
A newly divorced man could use his boat as an asset for a secured loan, so he could buy a car. If his wife got the family car in the divorce, then he would need to buy one. Sometimes divorced people find their credit rating needs a chance to improve, especially if one member of the couple has been a big spender during the marriage.
Reasons people would want an unsecured loan:
A new homeowner discovers that the boiler doesn’t work at the start of winter. The snow is starting to fall, and this new boiler must be purchased and installed. But they do not have the money in their savings account to purchase it. So getting an unsecured loan helps them to obtain it.
A couple celebrating their 25th wedding anniversary wants to take the luxury vacation they dreamed about for their honeymoon but could never afford. They get a loan and are able to stay in five star hotels and eat in the finest restaurants.
A family has twin daughters who have both announced they are getting married over the same summer. It’s an exciting time but will cost more than they realized. They take out a loan so each daughter can have their own special day.
Taking out a loan can mean the difference between being comfortable in your home and experiencing discomfort. It can send a child to the school they want to go to. Loans give you many options and choices!