Get to know the difference between secured loans vs. unsecured loans here on the blog, so you can make the best choice for you. Many people find themselves in need of a loan at some point during their lives. Whether it’s when they’re looking to buy a house or even when they need a payday loan to make it through the week, loans are often a part of life.
There are two main types of loans you might have heard about: secured and unsecured. What’s the difference between them and which one should you choose? Read on to learn more about secured loans vs unsecured loans from the Cash Factory USA team today!
The Biggest Difference
The biggest difference between secured loans vs. unsecured loans is that secured loans are tied to collateral and unsecured loans are completely unprotected by a piece of property that you own. Some examples of secured loans include a mortgage or car loan. If you default on these, the lender will take your home or car and sell it to make their investment back.
A few types of unsecured loans include credit cards, personal loans, and student debt. Here, there is no physical collateral for the lender to sell, so defaulting means your bills may go to a collections agency, who will try to get as much money out of you as they can.
Which Should You Choose?
Should you get a personal loan that’s secured or unsecured? Should you open another credit card? Who should you go see to apply for a mortgage? All of these are important questions to consider when comparing secured loans vs unsecured loans.
There are a few different factors that can help you make a decision here. A secured loan may be easier to get (especially if you have poor credit). The risk to the lender is limited — they can always sell your collateral to make up for their loss. Secured loans also have lower interest rates and provide you access to larger amounts, so you spend much less over the course of your loan repayment and you are more likely to be able to pay all of your bills instead of just some of them.
Paying Off Your Loans
When it comes to paying down the debt on your secured loans vs unsecured loans, you need to prioritize. It’s usually more important to pay off secured loans because your collateral can be up for grabs. You don’t want to lose your car if you miss a payment. This is opposed to a late fee for missing a payment on an unsecured credit card. The biggest downside, however, to missing a payment on an unsecured loan is the interest rate. The additional interest can pile up and drive you deeply into debt.
Usually, loans with the highest interest rates are the loans you want to target first in your repayment plan. However, house payments and car payments play a key role in your everyday life and are also a top priority for you and your family. Get to know the terms of your various loans. You can then make the best decision on how to pay them off while ensuring your family is able to cover the necessities, like housing.
If you find yourself drowning in debt with personal loans that are secured or unsecured, there are counseling services available. They offer advice, planning, and debt management to help you find your footing again. Discover which groups can help you plan for your financial future for free and get you out of debt ASAP.
These articles contain opinions from the Cash Factory Team. You should always check with your financial experts before making decisions on your financial future.