Personal Loans – Secured vs. Unsecured

When it comes to personal loans there are many different types to choose from. For some people it may be difficult to understand which types of loans are best for each specific type of credit.

The first thing to consider when going after a loan of any type is whether it should be secured or unsecured. Each of these loan types have specific criteria that a person must meet in order to qualify. It is important to know the specific requirements for whatever type of loan you are attempting to obtain.

Secured loans are often more widely preferred than unsecured loans. One reason for this is the fact that secured loans are often much easier to obtain because they require a person to put up something of substantial value for collateral. Because of this collateral, secured loans often are able to offer interest rates which are much lower than those of unsecured loans as well. Some assets that may be used for securing a loan include the following:

  • Home
  • Car
  • Property
  • Stocks
  • Bonds

A home or car may often be used even when this is the product you are purchasing with the loan. A lien is placed against the title or deed of this product until payment of the loan including all interest and fees are paid in full. At this time the lien will be lifted and the title or deed will be released. This type of loan is often fairly easy to obtain even when a person has a less than perfect credit history.

Unsecured loans are much more difficult to obtain because they are not backed by any type of collateral. In most cases the only assurances that a lender has that this type of loan will be repaid is the borrower’s word. For this reason unsecured loans are often much more difficult to get. This is especially true if you have a poor credit history. Unsecured loans are usually used to obtain credit cards or educational loans. Because there is nothing backing a person’s word with this type of loan, the interest rates are often much higher than that of secured loans.

Regardless of whether you choose a secured or unsecured loan it is very important to make payments on time and adhere to the terms agreed upon. With secured loans failure to do this can result in losing whatever collateral you used to secure the loan. While defaulting on unsecured loans may not cost you anything physical the damage that will be done to your credit is often immeasurable and can take years to repair.