Secured Loans Vs Unsecured Loans: Get the Difference

Secured Loans Vs Unsecured Loans

Secured Vs Unsecured Loans

There are many of the differences existing between secured loans and also unsecured loans. But, first of all, it is very important to understand what exactly are secured loans and unsecured loans.

What is a Secured Loan?

Specifically, a secured loan is such a loan that is given out by a particular financial institution where there is the use of an asset as collateral or security for the loan. As for example, you can make use of your gold, house, etc. for the purpose of availing a loan amount which corresponds to the value of the asset.

Also, for a secured loan, the financial institution or bank which is involved in providing the loan will specifically hold on to the ownership deed of the asset until the particular loan is paid off.

Some of the important examples of secured loans include:

  • Car loan
  • Loan against property
  • Home equity line of credit

You May Read: Avoid a Loan Application Rejection

What is Unsecured Loan?

As suggested by the name, an unsecured personal loan is known to be such a loan that is not at all secured by collateral like gold, land, etc. Also, these particular loans are again comparatively riskier to a lender and this is the main reason why it is associated with a higher interest rate.

Whenever a particular lender releases a specific unsecured loan, he or she does this after the evaluation of your financial status as well as assessing whether or not you can repay your loan or not.

Some of the important examples of unsecured loans include:

  • Student loans
  • Personal loans
  • Credit cards

What Are The Major Differences Existing In Between Secured And Also Unsecured Loan i.e. Secured Vs. Unsecured Loan?

  • Specifically, the major differences existing between a secured as well as unsecured loan are the collateral that is required to get the specific loan.
  • So, a secured loan mostly requires you to provide an asset to the lender which will be mostly used as collateral for the loan. In order to attain a specific loan, the unsecured loan does not need you to provide an asset as collateral.

You May Read:  Things Never Do with Personal Loan

  • Secured loans are much easier to obtain whereas, on the other hand, secured loans are comparatively much harder to get. This is because it is less risky for a particular banker to preferably give out a secured loan.
  • There are some other differences existing between an unsecured and also secured loan and it is known to be the interest rate. Usually, the secured loans possess a comparatively lower rate of interest whenever it is compared to a specific unsecured loan. This is the main reason why these unsecured loans are known to be riskier loans by the lenders in comparison to the secured loans.
  • When compared to the unsecured loans, the secured loans mostly have longer repayment periods. Rather than an unsecured loan, again the secured loans are involved in offering a more desirable contract to the borrower.
  • Again, these secured loans are much easier to obtain as they are comparatively less risky for a lender to give out. On the other hand, unsecured loans are much harder to obtain in comparison to secured loans.

Is a Secured Loan Considered To Be Better Than An Unsecured Loan?

Specifically, a secured loan contract is more favorable for a borrower rather than a certain unsecured loan. No doubt, it is much easier to obtain rather than an unsecured loan. Some of the times, it is also seen that the borrowing limits are higher, the interest rates are lesser and also the periods of repayment are a bit longer.

It is evident from all of these particular factors that whenever you opt for a secured loan, then it is considered to be more beneficial for a borrower.

You May Read: Know all About the Term Loan

But, mostly, the secured loans are preferred by the lenders over the unsecured loans due to its less risky nature to dispense. Also, in the case of the secured loans, a degree of certitude is specifically present in the lender’s mind as the borrowers have to certainly provide an asset as collateral in order to get a loan.

So, in this way, the lender gets the assurance to specifically get their money back even if he or she does not use the asset to recover from the loss of non-payment.

Additional Information Regarding The Secured Loan And Unsecured Loan

Whenever you are borrowing money, you will likely need to make a decision regarding the secured loan vs. unsecured loan. Basically, a secured loan is one that is connected to a piece of collateral i.e. something valuable like a home or a car.

So, with a secured loan, the lender can easily take possession of the collateral in case you do not repay the specific loan as you have agreed. In this regard, specifically, a mortgage and car loan is considered to be some of the most common types of secured loan.

On the other hand, an unsecured loan is not generally protected by any collateral. So, the lender again cannot automatically take your specific property in case you default on the loan. As a result, some of the most common types of unsecured loans include personal loans, student loans and also credit cards.

What One is Considered Right For You Between Secured Loan And Unsecured Loan?

There are a number of important factors that specifically go into deciding on an unsecured loan vs. secured loan. Generally, a secured loan is much easier to get as there are less risky to the lender. But, in case you possibly have a poor credit history or you are rebuilding credit, the lenders will be more likely to consider you for a secured loan vs. an unsecured loan.

Not only have that, a secured loan again tended to have a lower rate of interest. So, it means that in case you qualify for a secured loan, and then it is considered to be a smarter money management decision rather than an unsecured loan. Along with that, a secured loan will specifically tend to offer higher borrowing limits and thereby, it enables you to gain access to more money.

Final Words

So, these are the most important differences existing between secured loans and unsecured loans. Depending on your situation, you specifically need to choose one that suits you the best.

About Aditi Singh 81 Articles
Aditi Singh is an independent finance and investment advisor since 7 years and recently added with Investment Pedia. Users are welcome to put comments on her contributions.

Be the first to comment

Leave a Reply

Your email address will not be published.


*