Difference between Secured and Unsecured Loans

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Difference between Secured and Unsecured Loans explained here – trying to understand loans can be confusing and frustrating.

No one wants to consent to a loan to find out months later it wasn’t the agreement they wanted.

Find Out the Difference between Secured and Unsecured Loans

The first step to understanding the world of loans is to start with the basics.

They can be put into two different categories, secured and unsecured loans.

A secured loan is one offered by a financial institution in return for a piece of collateral from the borrower.

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Pieces of collateral or guarantees are most commonly real estate properties.

Other types of valuable assets that may be used as collateral include cars and stocks.

If the borrower fails to re-pay what they owe than the lender will seize the assets to make up for the default payment.

An unsecured loan is when a borrower may be approved using their credit rating only.

People who take out unsecured loans are those who do not have valuable assets or who do not want to use their assets as collateral.

Difference between Secured and Unsecured Loans one padlock open and one padlock closed
Difference between Secured and Unsecured Loans

Usually these loans are only granted to businesses and individuals who are very unlikely to default on payments.

If the borrower does default on a payment lenders will not have any assets to seize however, they may use other methods to collect payment and they will wreak havoc on the borrower’s credit score.

Choose whichever suits your own circumstances best

When compared secured and unsecured loans are no better than each other.

It really depends on your situation and whether you have or are willing to put collateral up to obtain a loan.

However, unsecured loans are better for building your credit or to pay another creditor.

Your best bet is to continue with your research, always read the fine print before you sign and always know the consequences if you happen to default on your secured and unsecured loans.

Please do not hesitate to reach out to us if you need to know more about the Difference between Secured and Unsecured Loans.

See also Homeowner Loans.