What are Unsecured and Secure Loans? – A Borrower’s Guide

Have you ever come across the terms, unsecured and secure loan? Probably you’re facing a hard time differentiating between both types of loan. Here is what you’re going to know about the secure and unsecured loan.

Unsecured loan

As unsecured loan is a loan that doesn’t require any types of collateral. Instead of relying on a borrower’s asset as security, lenders approve unsecured loans based on a borrower’s credit worthiness. Example of unsecured loan include personal loan, student loan, and credit cards.

: How an Unsecured loan work?

Unsecured loan sometime referred to as signature loan or personal loans are approved without the use of properties or other assets as collateral. The terms of these loans, including approval and receipt, are most often contingent on s borrowers credit score.

Typically, borrowers must have high credit score to be approved for unsecured loans.
Also, an unsecured loan stand in contrast to a secured loan, in which a borrower pledges some type of asset as collateral for the loan.

The pledged assets increase the lenders security for providing the loan. Because secured loans include mortgage and car loans.

Furthermore, unsecured loan requires higher credit score then secured loans, in some instance lenders who I’ll allow loan applicants with insufficient credits to provide a cosigner.

A cosigner takes on the legal obligation to fulfill a debt if the borrower defaults. This occurs when a borrower fails to repay the interest and principal payment of a loan or dept.

Key points of unsecured loan

. An unsecured loan is supported only by the borrower credit worthiness, rather than by any collateral, such as property or other assets.

. Unsecured loans are risker than secured loans for lenders so they require higher credit score for approval.

. Credit cards student loans and personal loans are examples of unsecured loans.

. Lender can decide whether or not to approve an unsecured loan based on a borrower’s credit worthiness but laws protect borrowers from discriminatory lending practices.

If a borrower fails to pay back an unsecured loan, the lenders commission a collection agency to collect the debt or take the borrowers to court.

: Secured loan

A secured loan backed by collateral financial asset you own, like a home or a car that can be used as payment to the lenders if you don’t pay back the loan. The idea behind a secured loan is a basic one, lenders accept collateral against secured loan incentives borrowers to pay the loan on time

: Types of secured loan

Secured loan come in multiple forms, but the three most common types of secured loans include three financial consumer loan mainstays, all requiring appropriate collateral before the loan is approved.

Mortgage Loan: The mortgage loan is a type of loan that is on top of the list of secured loans. Such loan is demand securable by the lenders.

Vehicle Loan: These loans covered autos, boats, motorcycles, are even private airplanes are considered secured loan as the vehicle are used as collateral in securing the loan.

Secured Credit cards: Secured credit cards is for consumer with no credit history, secured credit cards are good way to get the credit and build up your credit score. Unlike a mortgage or vehicle secure loan, secured credit card required a cash deposits collateral.

Final Thought

Getting a loan is a serious personal financial issue, and it takes plenty of planning and preparation to get the right secured loan for your unique needs, along with a solid plan to pay the money back. It is advisable and strongly recommended that borrowers should go for a secured type of loan as against the unsecured one.


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