As we enter 2021, many people are making financial resolutions that focus on milestones like buying a car, going on a vacation, getting married or even doing home repairs. The best tool in your resolution toolbox is knowledge.
No, we’re not talking about knowledge of car features, venues or types of kitchen cabinets—we’re talking about knowing your loan options. Let’s dive into secured and unsecured loans and what each has to offer. Remember, knowledge is power.
Put simply, this type of loan is attached to a valuable piece of collateral or an asset. Examples of collateral include a home, car, stocks, bonds or personal property. The loan, interest and other applicable fees must be paid in full to your financial lender, and until the full payment is made, the lender will possess the title or deed to your collateral. If you fail to repay the loan, your lender can take possession of your collateral.
Secure loans are about security. Using your home or another large item as collateral gives your lender security that you will repay your loan and not risk losing it. These loans can be used for new purchases, such as taking out an auto loan to buy a new car. They can also be used on existing purchases, such as if you own a house and you leverage the value of your home to take out a Home Equity Loan. Extensive repayment terms, higher borrowing limits and lower interest rates tend to make this loan option more appealing.
Common Examples of Secured Loans
Very different than a secured loan, an unsecured loan is money you borrow without putting up collateral or an asset. As the name suggests, this loan is not secured and therefore is a higher risk for lenders. That means higher interest rates. Qualifying for an unsecured loan depends on several factors including credit history and income.
Common Examples of Unsecured Loans
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