Secured or Unsecured Loan: What You Need to Know Before Selection
Is it time to finally update your bathroom, buy a new car, or go on that vacation you’ve been talking about for years now, but when you look at your bank account, you’re not sure how you are going to afford it? You may consider taking out a loan.
When it comes to borrowing money from a financial institution, there are many different avenues to choose from. Secured and unsecured loans are just two of the options.
Let’s define each. A secured loan is when you use collateral to secure your loan, for example, your home or car. An unsecured loan is just as it sounds, the loan is not protected by any collateral. So which option the best for you?
As stated above, with a secured loan you must connect it to a piece of collateral. Doing this makes it easier for you to get the loan, however, if you were to default on the loan, the financial institution would be able to take possession of the collateral connected to the loan.
You are more likely to get a higher loan amount and a lower interest rate with a secured loan. The most common secured loans are mortgage loans, vehicle loans, and secured credit cards.
An unsecured loan works a little differently than a secured loan. Since you are not putting up any collateral, if you are unable to pay back the loan, the financial institution may be able to reclaim their money in a different manner, for example, garnishing your wages or taking legal action.
Since an unsecured loan carries more risk for the lender, it can be more difficult to obtain, and generally comes with higher interest rates than a secured loan. The most common unsecured loans are credit cards, student loans, and personal loans.
Taking out a loan shouldn’t be done in haste. It’s important to fully understand the differences between each loan type. Make sure to also check your loan agreement, in the event you have more cash then you originally needed, so that you know what you can use the extra money for.
Ready to consider your options? Speak with a branch representative or visit our website today.
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