We all already know that the US economy is mostly based on credit. So, taking loans isn’t actually difficult in this country. The hard choice comes when you are looking for a lender and they give you the choice of choosing a secured loan or unsecured loan.
Most people don’t know what is the difference between one and another, so they face this reality without knowing that they may be choosing the wrong loan and they end up paying more money than they have to.
Basically, you can get a secured loan if you are able to back it up with an asset in case you can’t pay it off. On the other hand, the unsecured loan doesn’t need any collateral and you can get the money after a credit check.
Of course, both of them have their benefits and drawbacks.
Let us elaborate.
What is a secured loan?
As we mentioned before, the secured loan is a loan that is backed up by collateral, which should be an asset, this asset would be seized by the bank or the lender in case you can’t pay back the borrowed money.
This type of loan is usually used for big amounts of money, such as mortgages, car loans, or business loans.
Now, you can only use as a collateral certain type of assets, such as:
- Real Estate.
- Your vehicles.
- Stocks, funds, and other kinds of investments.
- Collectibles and other high-value goods.
- Bank accounts.
Having collateral will also give preferential interest rates since it represents less risk for the lender.
However, it’s also riskier for you, because if you put your house as collateral and you can’t keep up with the payments, you could lose it due to repossession.
Also, even though secured loans are used for large sums of money, you will be able to pay them off on a monthly basis.
And if you agreed to a fixed interest rate, it will become easier as time goes by.
What is an unsecured loan?
On the other hand, unsecured loans don’t require any assets as collateral. You will only need your credit history, credit score, and a credit check to see if you are eligible for one.
What you need to certain about, is that since it’s not backed up, you will have higher interest rates in comparison to the secured loans.
Regarding payments, you will be to pay it off on a monthly basis as well and even do several payments in a month to quickly settle your debt. This is actually possible because unsecured loans are mostly requested for small sums of money.
If you miss your payments, you will harm your credit score, which will affect your ability to get loans in the near future.
Examples of unsecured loans are:
- Student loans.
- Personal loans.
- Installment loans.
- Payday loans.
- Credit cards.
And in comparison with the secured loans, you can actually take a personal loan and use it almost for everything you want, even debt consolidation.
The best part of them is that they take up to 48 hours to be approved or denied. Which is a lot faster than secured loans.
In fact, there are lenders, such as SafeLoan, that take up to 24 hours to make a decision and in case you are approved, you get your money deposited in the next business day.
How do you know if you need a loan?
Knowing if you need a loan requires a lot of thinking and research. Because you see, having money is a basic need right now. But at the same time, you may not need extra money if you are already covered.
So, having a budget will help you out so you can see if you actually need extra cash.
If you notice that after counting all your obligations you don’t have enough money to pay them all, you definitely need a loan.
However, that’s not the only moment when you know you need a cash advance.
Maybe you have an important date and you need to buy important stuff but you can’t afford it. A small personal loan would fix that, and you will be able to pay it off fast.
So you see, it all depends on the moment and the need you may have at the time.
Choosing a safe loan online is not an easy task. It requires research and time to put all the information together and come up with a decision.
It also depends on what you are hoping to do with the money you are borrowing.
Because you see, if you are going to buy a house, you won’t be able to request an unsecured loan, and even if you can, the interest rates will be a lot higher than you expected. That could make you go into an endless debt spiral.
On the other hand, when it comes to secured loans, you need to be very careful. You must be entirely sure that you are able to pay your loan on time if you don’t want to lose the asset that’s backing up your loan.
If you don’t know what to do next or you are barely starting to think about the type of loan you need, reach out to us so we can assist you in your loan process.