Secured vs. Unsecured Loan

loan application formComparing secured vs. unsecured loan options is a good idea when you’re about to take a personal loan. Essentially, secured loans are backed by collateral such as a house or car, while unsecured loans are backed by your creditworthiness. The main difference between secured and unsecured loans is what happens when you stop making payments, but there are a few further points to consider.

What is an Unsecured Loan?

When taking out a loan, the lender will usually check your credit rating. If you have a good credit rating, that alone will act as security for the loan since lenders will be convinced there’s a good chance you’ll pay the money back. Most personal loans and credit cards and are unsecured.

If you default on an unsecured loan, the lender can’t take your property. However, they’ll take your good credit rating instead, making it harder to get other loans in the future. Creditors can also sue and win a court judgment to collect what you owe.

In general, unsecured personal loans are a great option for borrowers with good to excellent credit. They’re ideal for debt consolidation, home improvement costs, and other large purchases.

What is a Secured Loan?

If your credit rating doesn’t qualify for an unsecured personal loan, you may be able to take out a loan backed by something you already own.

Beyond the simple personal loan, types of secured loan include:

  • Mortgages
  • Home Equity Loans
  • Auto Loans

If you default, the secured loan agreement will give the lender the right to seize the collateral without going to court. That said, most lenders provide grace periods to help you to make good on the debt.

Secured personal loans are a good option when you need money fast, know you’ll be able to pay it back, and don’t have a strong credit rating, but you should only take them out when the money is needed instead of just wanted.

Speak to Xpress Cash Today About Personal Loan Options

Whether you’re wondering how personal loans affect credit or how much sense it makes to take out a debt consolidation loan, the team here at Xpress Cash can help. For any further advice or assistance, simply contact us today or visit one of our branches across Idaho, Wisconsin, and Michigan.