An unsecured loan is simply a loan you get based on your good name and your credit rating. Often the interest rates are higher on an unsecured loan than on a secured loan because the risk is higher to the lending institution. If you are unable to pay back the loan for some reason, the lending institution does not get any money back. However, your good name and your credit rating are potentially ruined. Visit https://www.bankrate.com/ for current interest rates and the financial institution that services them.
On the other hand, a secured loan is a loan you get when you put up some assets. The advantage of a secured loan is that you often get more money at a lower interest rate for a longer repayment period than you would with an unsecured loan. This is because you have some assets to back up your loan. The lending institution prefers this kind of loan because if you find yourself unable to make payments, they can seize and sell your assets as an alternative form of payment. Because the risk to them is diminished, they can provide you with more attractive loans at a better rate.
You might think of a mortgage as a secured loan. The bank lends you money to buy a home and uses the home to back up the loan. If you do not make your mortgage payments, the bank can seize your house. Visit the following link for an article on what a 15-year mortgage actually can cost you, https://kgmeyerpc.com/what-a-15-year-mortgage-really-costs-you/.
Or you can think of a secured loan as a pawnshop that lends you the money you want but takes the goods you pawned as collateral until the loan is repaid.
So, which one is the right one for you? It’s a tough decision to make. A secured loan will get you a better rate in most cases, so that you might prefer that.
However, perhaps you don’t have any assets available, or you don’t want to risk certain assets’ seizure if you cannot make payments. In this case, you might not mind paying a little more for the benefit of having an unsecured loan.
Both unsecured and secured loans are good options to have when you are doing your financial planning. You can use them to consolidate your outstanding bills, leverage your home investments, or get the things you need and want. And, with the choices between unsecured and secured loans, you have the benefit of being in total control of your financial destiny!
