What's the difference between an unsecured loan and secured loan?
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When it comes to personal loans, there are two options available, a secured and unsecured loan. And choosing the right option for your unique situation can be difficult. You must consider many things like assets, cash flow, and financial goals. Learn more about the main differences between a secured and unsecured personal loan to help you decide which one suits you best.
What Does Secured and Unsecured Loans Mean?
Secured Personal Loan
A secured loan means you provide an acceptable asset as security against the money or loan. This means if you are not able to repay the loan, the lender will be able to sell the assets to pay towards your loan.
Unsecured Personal Loan
An unsecured loan is a loan that does not require any asset or security for the debt. This means the interest rate for an unsecured loan is usually higher compared to a secured loan since it has a higher risk for the lender.
What is the difference between secured and unsecured loans?
To compare them, here are some pointers on how secured and unsecured loan works:
A secured personal loan usually:
Allows you to borrow money using collateral like a home and car.
This type of loan usually takes a longer period of approval as there is a security to consider.
It offers a lower interest rate.
It has higher borrowing amount compared to unsecured loans.
An unsecured personal loan usually:
Often based on your financial capability instead of physical assets.
Offers smaller borrowing amounts compared to secured loans.
May have a quicker time of approval, as there is no collateral for security to consider.
It may have a bigger risk for the lender, as there are no assets or collateral for security
May have a higher interest rate compared to secured loans because of its high risk
Bottom Line
Whether it is a secured or unsecured personal loan, it is important that you evaluate your situation and make sure you understand the pros and cons of each loan before you take out a personal loan. You may also make a clear plan for how to repay your debt.
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