If you have been shopping around for a loan you have probably heard the terms unsecured and secured loans. Do you know the difference? Do you know which type that you need? Do you know which type you would qualify for?
It’s difficult many times for the average consumer to wade through all of the terminologies and has a real idea of what they need. Secured and unsecured loans can be broken down into really simple terms for you.
Unsecured loans are those that do not need to be secured by anything, such as your home. With these loans, the lender believes that you will be able to repay the amount as promised. Unsecured loans are not difficult to come by, but you do have to have a good credit history, a low debt to income ratio, and you need to be able to provide your financial stability.
There are many different types of unsecured loans such as personal, student, personal lines of credit, and even some home improvement loans.
Secured loans are different in that the lender requires you to secure the loan with something, such as your home or your car. What this means is that you are providing collateral to the lender, which means if you don’t pay they have rights to this object. Secured loans are more common as many people don’t have the credit or the funds to get an unsecured loan and for many, these are more appealing because they feature lower interest rates.
Lenders like these loans because they have some security in the fact that you will repay. Some examples of secured loans are home equity, home equity line of credits, auto, boat, home improvement, and recreational vehicle loans.
What type of loan is best for you depends on what sort of loan you are looking for? If you just need a personal loan for a couple thousand dollars to pay off a couple medical bills you may be able to do an unsecured loan if you have a decent credit history and you have a low debt to income ratio.
If you want to buy a home, then you are looking at a secured loan. This doesn’t mean that you need to put up collateral to buy the home, the home is the collateral. What this means is that if you don’t pay on the loan than you lose the home.
The same can be said for a car loan, for a new or used car. When you buy the car with the loan you are securing them with the car, agreeing that if you don’t pay them you will have the car turned over to the lender.
Secured and unsecured loans lend themselves to different things. In most cases, those life-changing purchases such as homes and cars are secured and everything else may fall under unsecured if you have the credit history to back it up. There are pros and cons to both types of loans; you simply need to choose the variety that is best for you.