Secured Vs. Unsecured Personal Loans: Which Is Right For You?
Are you considering a personal loan? If so, one important decision to make is whether to get a secured or unsecured loan. By understanding the differences between these loan types, you can make an informed choice that aligns with your financial needs. Here is what you need to know about the features, benefits, and considerations of secured and unsecured personal loans to help you determine which option is right for you.
It will help to know exactly what the differences are between a secured and unsecured loan if you are unfamiliar with them. A secured loan uses some type of collateral so that the lender can get their money back, such as a home or vehicle. An unsecured loan doesn't require collateral, and the lender has nothing that they can hold on to in case you do not pay back the loan.
The nature of having collateral makes secure and unsecure loans have different risk levels, which can impact the terms of the loan. When the lender has collateral, they are more likely to offer you a low interest rate and give you a high borrowing limit, which are two things that may be very important to you when looking to borrow a larger sum of money. Meanwhile, an unsecured loan poses more of a risk to the lender, and they may give you a higher interest rate as a result.
The lender is not going to take your word on how much your collateral is worth, and it will likely go through a valuation process. Appraising an asset is not free, and you end up paying for the appraisal when closing on a secured loan. The benefit to an unsecured loan is that there is no valuation process, which is cheaper and can actually cause the loan to be approved faster as a result. No appraisal means you remove an entire step from the approval process.
It's important to know how lenders view a secured and unsecured loan in terms of their purpose. It doesn't really matter what you use the money for in either type of loan, but a secured loan operates under the assumption that you are paying back the money that the collateral is worth. While there is no collateral with an unsecured loan, you don't have to disclose what the money is being used for. The lender often doesn't care what the money is used for and is only concerned if they trust you to pay back the money that you borrow.
For more information on personal loans, contact a professional near you.