When it comes to your personal financial situation, you are completely unique from everyone else. We all have different bills to pay, different bank accounts, different incomes, different outgoings and the rest, which can make managing our finances difficult.
If you find yourself short one month, or you need to make a larger purchase, you may be interested in acquiring a loan, or a little bit of extra cash to help get you where you need to be. However, searching for a loan can prove difficult, especially when there are different types of different people.
One of the two main categories you’ll come across are secured and unsecured loans. Today, we’re going to detail the main differences of each, so you can find which one best works for you. For this, we will break each one down in an easy-to-understand way.
What is a Secured Loan?
A secured loan is typically a larger loan that you’ll ‘secure’ with an asset. This means that when you take out the loan, the asset you attach to it will be used as collateral and protects the lender in case you’re unable to remake your payments.
In the event that you’re unable to pay the loan back or make the necessary repayments, the lender, such as the bank, will withhold that asset. You may give them the deed of your house or the ownership of your car, or another similarly priced item to the loan you’re using.
In that example, if you were unable to make repayments on the loan which is attached to your property, you would end up losing your house.
However, since you’re securing an asset to your loan and the lender is protected in case you’re unable to pay it back, the rates are typically much cheaper and more affordable than any kind of loan and allow you to enjoy higher borrowing limits as well as longer repayment terms.
What is an Unsecured Loan?
By nature, an unsecured loan is quite literally the opposite of a secured loan. With one of these, you won’t need to connect or attach an asset to your loan, such as your house or car, but you can still receive the money.
For example, this might be like taking out a credit card from your bank, a loan from lenders like www.KingOfKash.com or entering your overdraft. As you may know, you don’t need to hand over anything for these loans; you just get the money in your possession.
However, these loans then become riskier for the lenders because they have no collateral. This means the rates tend to be higher, the duration of the loans is shorter, and the upper credit limit is much lower than your typical secured loan.
Taking out an unsecured loan will tend to be based on your credit history and your financial abilities in the past which will determine your risk factor, and ultimately your personal rates.
Summary
As you can see, there are some key differences when it comes to secured and unsecured loans. Making sure you take the time to choose which one is best for you is key to achieving financial success, so be sure to research what works best for you.
P.s. If you are reading this because you’re shopping for a loan consider checking out Smarter.loans. Smarter.loans is a loan aggregator in Canada. Its got great service and a super to use interface. If you’ve got some spare time check out the mogo reviews on their site, well worth the read.
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