Secured Loans VS Unsecured Loans

Whatever type of loans you obtain you are very likely to have a choice between the secured loans and unsecured loans. Auto loans, home loans, business loans, personal loans and other types of loans may be either secured or unsecured loans.

But what is a secured loan?
When you are obtaining a secured loan you provide the lender with collateral. But secured loans are available only for property owners because your can keep your property as a mortgage. If your property is kept as collateral you may be forced to sell it and get money in the event of your default on the loan you have. Thus if you do not have money to reimburse your loan debt the lender may repossess your property. As a rule the most typical property that is kept as collateral is a home. Even in case you are getting a home loan and buy a new house the house may be used as collateral.

Another option to guarantee the repayment and to get money is obtaining home equity loans. Home equity is the difference between what your home is worth and the loan amount. For example if your home costs $200,000 and your mortgage balance is $50,000 your home equity is $150,000. Home equity can also provide collateral but in this case the lender has only a stake in your home that is equal to the amount you owe them but not more.

Unsecured loans are loans that are not guaranteed by any collateral. They are also known as signature loans because the lender has to rely only on your signature.

Lenders tend to give secured loans more gladly as they do not risk their money: in case of a defaulted loan they repossess your property. Thereby secured loans are easier to obtain and you will have a lot of options offered by different lenders.

If you are applying for unsecured types of loans you are very likely to pay higher interest rates as a compensation for the risk that the lender bears with you.

Secured loans may offer your better advantages such as:

  • Lower loan interest rates
  • Longer repayment period
  • Larger borrowing amount available
Despite all the advantages of secured loans think twice before obtaining a secured loan and regard your personal financial situation. You should calculate precisely whether you will be able to repay the payday loan online. Otherwise you will loss your propriety, your home, the most expensive things you have. Thus before applying for a secured loan define the amount you need but do not try to get as much money as possible because you will have to repay not only the principle amount but also pay the interest.