Secured vs. unsecured personal loans: What you need to know

When shopping for personal loans, borrowers will find that there are two main types of loans — secured personal loans and unsecured personal loans.

Secured loans

A secured loan is a type of loan in which a borrower pledges an asset such as a car, property, or equity etc., against that loan. The loan amount made available to the borrower is usually based on the value of the collateral.



Pros

  • Less stringent eligibility requirements
  • Often has lower interest rates than unsecured loans
  • Secured loans usually have higher borrowing limits than unsecured loans

Cons

  • Collateral can be taken if you default on the loan
  • Failure to repay the loan as agree can damage your credit

Where to get an unsecured loan

Unsecured loans, like the name suggests, is a loan that is not secured by a collateral such as land, gold, etc. These loans are comparatively riskier to a lender and therefore associated with a high interest rate

You can get an unsecured loan from a bank, credit union or online lender.

Pros

  • A lender can’t take your assets if you default on the loan, at least without a court’s permission
  • No collateral required
  • Unsecured loans usually have lower borrowing limits than secured loans

Cons

  • Often has higher rates than secured loans
  • May have a tough time qualifying with bad credit
  • Defaulting on the loan can cause serious credit damage

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