If you are searching “secured vs unsecured” chances are you are in the process of looking for a loan and need some clarification on what the difference is. Basically, a secured loan means that you put up something of value as a promise you will pay the loan back. Versus an unsecured loan, which requires no collateral.
When to Get an Unsecured Loan
This is also known as a personal loan. This loan is enforced by a signed contract between the borrower and the lender. Typically unsecured loans are credit cards and student loans. Since there is no collateral, in order to get an unsecured loan your lender weighs heavily on your credit score. You will also pay higher interest rates since the lender is taking more of a risk.
When to Get a Secured Loan
Typically people make smaller purchases with unsecured loans, however when it comes time to buy a house or a car a secured loan is the way to go. In real estate, you will get a mortgage, which is the most common type of secured loan. Mortgage loans are always secured by property which acts as the collateral. Whereas a car loan uses your vehicle as collateral.
Which is Better?
Depending on what kind of purchase you are making, effects the kind of loan you will need. If you are in the market for a home getting a mortgage is the way to go. Secured loans are safer for the lender and therefore cheaper for the customer. However, if the customer doesn’t finish paying the loan the lender can claim the collateral. Which in the case of real estate is your house.
“If the need for money is immediate, it’s quicker and easier to get an unsecured loan,” says Craig Garcia, president of Capital Partners Mortgage. “A secured loan has to be underwritten and have a closing, whereas you can walk into a bank or apply online and get a line of credit right away.”
