If you need to borrow money, chances are you’ve already started researching options that might be right for you. Personal loans are a popular choice, and they come in two forms: secured and unsecured. But the differences between the two are not always clear.
The secured loans require collateral, unlike unsecured loans. You will find that, generally, secured loans are much easier to obtain and often have lower interest rates because they pose less risk to the lender. However, they may not be the best option for you and could have serious consequences for your finances if you are unable to repay what you borrow. So let’s take a closer look at what a secured personal loan.
What is a secured personal loan?
These personal loans are backed by collateral, via your assets. This means that when you apply for a secured loan, the lender will want to know which of your assets you plan to use to secure the loan. The lender will then place a lien on this asset until the loan is repaid in full. If you can’t repay the loan, the lender can seize the collateral and sell it to get their money back.
The unsecured loan
Unsecured loans include credit cards, student loans, and others. Lenders take on more risk in granting this type of loan because there is no asset to recover in the event of default. This is why the interest rates are generally higher than for secured loans. If you are turned down for an unsecured personal loan, you may be able to get a secured loan, if you have something of value that can be used as collateral.
The different types of secured personal loans
Lenders place a lien on your collateral, and they know that in the worst case scenario, they can take possession of the assets you are using as collateral. This does not guarantee that you will repay your loan, but it does give lenders a greater sense of security and often gives the borrower more willingness to repay the loan. Types of secured loans include, among others:
Mortgage : With a mortgage, you put your house or property as collateral to buy that house. If you don’t make the payments, your home may be foreclosed.
Car loan : When obtaining a loan for the purchase of a car or any other vehicle, your vehicle will serve as collateral. If you don’t make payments on time and in full, your vehicle could be seized.
Where to get a secured personal loan?
When you are looking for financing in the form of a secured personal loan, you have a few options. In fact, you can do business with your bank or Caisse, or apply to a lender such as Crédika.
In any case, take the time to shop around and compare interest rates and repayment terms in order to make an informed choice.
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