Deciding whether to get a secured or unsecured loan is the most basic decision you can make when deciding to borrow money, and will effect every part of your borrowing experience. There are a number of factors to look at for each of these scenarios that can help you make this decision for your situation.
The first thing you need to understand is how lenders decide whether to approve applications and what interest rate they will offer you. Most know that they look at your credit report and your income, but what they are looking for is the level of risk you represent. They are looking at how likely it is that you are going to make your payments every month on time.
With that in mind, the basic difference between a secured or unsecured loan is collateral. If you have some collateral to offer, such as real estate, a vehicle, jewelry, or other high priced collectible, then the lender has some way to collect his money regardless. This means you will be offered lower interest rates and lenders will be more flexible if you have a low credit score or need a longer repayment schedule.
It is important to note that banks will generally only accept real estate as collateral, for other forms you’ll need to try other lenders, there are many of them online. Also, because your collateral will have to be appraised, the application process will probably take a little longer.
If you don’t have collateral you’ll be offered a slightly higher interest rate and your credit history becomes a lot more important. Your application will be mostly judged upon your credit score and if your scores are low you might not be approved and if you are you will be offered much higher interest rates.
It breaks down to this- with collateral you can get lower interest rates and more flexibility from your lender with a secured loan, or an unsecured loan without collateral will get you faster approval, but with high interest rates.
Visit these sites to learn more about the benefits and costs of Secured Credit Loans or Unsecured Loans for every situation.