When choosing what type of loan you are going to apply for, you must know the difference between unsecured loans vs. secured loans. There are certain instances when you would want to choose one over there other and not knowing the differences between unsecured loans vs. secured loans can cost you a lot of money. Basically, you will need to find the loan that best suits your current need. If you do not know differences between unsecured loans vs. secured loans, you will not know what to ask for.
Secured Loans:
To get a secure loan, you have to “secure” the loan with something you own. With an unsecured loan vs. a secured loan, you are not giving anything to the bank to hold. With a secured loan, you are. With this type of loan, you are giving the bank something you own as collateral to hold until your loan is paid. They do not physically have this item (home, boat, car, furniture, jewelry, art, cash, or other assets) but have rights to seize it if you default on the loan. To get these types of loans, you have to sign a document that gives ownership of your property to the bank if you fail to make payments. The interest on these loans is fairly low because the bank holds a deed on your property until the loan is paid in full. One of the things that make an unsecured loan vs. a secured loan better is that with a secured loan, even if the bank can get money for your property, it might not be enough to cover the loan. If this is the case, you do not only loose your property you put up for collateral but you owe even more at this point. With unsecured loans vs. secured loans, the only thing that is taken is your credit if you don’t pay.
When to get a secured loan:
- Home Equity Loan
- Auto Loan
- Boat Loan
- Motorcycle / Craft loan
- Home Renovation Loan
- Large Business Loans
Unsecured Loans:
To get an unsecured loan vs. a secured loan, you do not have to put anything up for collateral to get the loan. Because of this, and because the bank will be left with nothing if you default, the interest rate is much higher. Also, unsecured loans vs. secured loans are much harder to get because there is nothing for the bank to hold as collateral. Knowing what type of loan to ask for and the difference between unsecured loans vs. secured loans can save you some embarrassment in discussing your options.
When to get an unsecured loan:
- Personal Loans
- Student Loans
- Consolidation of Student Loans
- Light Home Repair Loan
- Small business loans
You never want to borrow too much, or borrow outside of your means. If you cannot pay, you should not borrow. Knowing the difference between unsecured loans vs. secured loans is essential in deciding where and under what terms you are borrowing money. Not knowing the dynamics of unsecured loans vs. secured loans can result in a loss of your most prized possession, or your credit. Your credit also plays a key role in the banks determination of what type of loan you are eligible for. Sometimes you can get one or the other. And, sometimes you can get either – it depends on your credit rating.
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