Secured Loans

There are times in our life in which we will need to borrow money. For instance you may need extra money to buy a car or a home, but your income may not be enough. You should feel lucky if you have a close friend or family member who can let you borrow the money, however, in most cases, we have to depend on private lenders, like banks or credit unions. There are two main categories for loans, secured loans and unsecured loans. They both have pros and cons, keep reading to learn more.
Secured loans

This is the most common type of loans, in which you use your assets/collateral to backup the loan. This basically means that if you don’t pay it off, the lender could take your collateral and sell it to recover what they loaned you.

Due to the aforementioned, obtaining secured loans might be a risky thing to do, especially if your collateral is your primary home.

However, with a secured loan you will be able to borrow larger amounts of money than with unsecured loans. Usually secured loans are much more flexible (longer repayment schedules and lower interest rates) because the lender knows he can recover most of the money you received.

Paying a secured loan on time will also help you credit history, since lenders will report prompt payments positively.

Quick summary for secured loans:

• Cheaper than unsecured loans
• Longer repayment periods
• Help you build your credit
• Requires collateral

Unsecured loans

As with secured loans, there are different types of unsecured loans, like: credit card loans, payday loans, cash advances, business cash advances, factoring, etc.

These types of loans don’t require you to present your assets as collateral, but instead lenders rely on the terms of the contract and on your credit worthiness to pay the loan back.

Because the lender has nothing to back the money loaned, the risk they run is a lot higher. Therefore, the interest rate will be higher, the repayment term will be shorter and the amount you can borrow will be smaller.

The main advantage of an unsecured loan is that you won’t lose your house or any other valuable assets you might have, but always make sure you read the fine print, so you understand what a default is.

Quick summary for unsecured loans:

• Funds are more expensive
• Shorter repayment periods
• Requires a good credit history (in most cases)

Doesn’t require collateral