Secured And Unsecured Loans - Difference
Loans come in different shapes and sizes. When considering going for one, you will have to think about their differences. You will want to choose a loan that works for you in all areas, including interest rates and amount. When doing your research and trying to decide, you will see a common change between available loans - some of these are secured loans and some are unsecured. If you have no experience or knowledge when it comes to loans, this may throw you off and confuse you. Knowing the difference between the two is important when choosing a loan, no matter what you are doing or the amount that you need.
Secured loans use collateral. This collateral can be vehicles, homes, and other property of value. It is anything that the lender can take or keep if you fail to pay the loan in a timely manner. You hand over the deed, title, or property, allowing the lender to keep it until you pay back the loan in full. This is what a mortgage is. Any loan where the lender can take property of yours is a secured loan. Some personal loans are secured, as well.
Since secured loans use collateral, many of them do not have high standards for credit. This is not true for some, such as mortgages from certain lenders, but many secured loans are available to those with little or no credit. Secured loans also have lower interest rates in general. Personal loans that are secured loans will have lower credit requirements and interest, as an example.
The difference here is that there is no requirement for collateral. If you do not pay the loan, the lender cannot immediately gain ownership of your property. This makes it a higher risk loan for the lender and a lower risk one for the borrower. Personal loans are typically unsecured loans, at least in most cases.
Unsecured loans usually have higher standards for credit. The lender takes a large risk here and will have higher standards as a result. They also bump up the interest.
Remember that secured and unsecured loans are not always the same wherever you go. The amount available, collateral, interest rates, and other factors may vary from lender to lender and borrower to borrower. The information above is a generalization that is true the majority of the time, but may change with some lenders.