Secured vs. Unsecured Loans: Which One’s Better for You?

Figuring out the right way to finance a purchase can be tricky! With so many loans on offer, you might be at a cross road trying to choose which path is right for you. On one side, you have the unsecured loan options also known as personal loans, and on the other, you have a big array of secured loans available.

So, how do you choose between these two financial roads ahead of you? It’s simple — just take careful look at your distinct financial needs; they’ll help you make the right decisions. You need to be clear about what you need the money for, what your financial situation currently is, and what you’re ready to put on the table before you repay your loan.

Without further ado, here are the secured vs. unsecured loans basics you need to know to make the right financial commitment.

1. What Is a Secured Loan?

Secured loans are the perfect option for those of you willing to use your personal possessions to secure your funding. Also known as collateral, these valuable possessions are what loaning bodies use to make sure you will repay the borrowed money. The loans are “secured” by a house, car, or precious metals (thus we have loan money for gold or silver) and are technically of no risk to the loaner.

Probably the most popular type of secured vs. unsecured loans is the mortgage. Other popular loan types include business loans (including small business loans), car loans (both new and used) , equity, and lines of credit. Collateral loans are usually the only option to obtain a large sum of money (above $25,000), which makes them suitable for big financial investments such as a new home purchase or fueling a big business venture.

Even though loans can be offered to individuals with a low credit score — there are even loans with no credit check — banks and other loaning bodies will usually make their decision based on the following 3 questions:

1.      Are your appreciating assets enough to secure the loan?

2.      Is your income high enough to guarantee you will be able to cover the monthly installments?

3.      Is your financial history and credit good?

Pros and Cons of Secured Loans:

·         Pro: Low interest rates, longer repayment periods and high borrowing limits (based on your personal circumstances).

·         Pro: Easier to secure, due to the collateral “secure” factor.

·         Con: The overall approval process could take longer compared to others loan types because of the collateral assessment period

·         Con: You bear the risk of losing your collateral if you fail to default your loan. Even though there are cases in which you might miss out on a few payments without any consequences, you need to stick to the terms laid out in the contract and repay your loan in full.

2. What Is an Unsecured Loan?

Unsecured loans, also recognized as signature loans and personal loans, are a brilliant choice for all those who might not own any valuable assets, but do possess a good credit score. These loans are offered to individuals or small business owners in need of quick or everyday financing. With secured vs. unsecured loans, banks or loaning bodies don’t gain any assets or ownership for the capital they are owing.

The most common types of unsecured loans include student loans, credit cards and lines of credit. Due to the fact that unsecured loans are only bound by a contract which involves no collateral, they’re usually for lesser monetary value and include a more strict repayment plan. Furthermore, the secured vs. unsecured loans is usually assessed based on your credit score or financial income.

Pros and Cons of Secured Loans:

·         Pro: Unsecured loans are easy to get and are great for covering emergency costs.

·         Con: Most unsecured loans have high interest rate (sometimes up to 12%) or high annual fees.

·         Con: The interest rate is based on your income, credit score and repayment period. Even though you can receive a business or personal loan for bad credit, your interest rate is expected to be high. Nonetheless, if you have a good score the rate will be more reasonable. Overall, longer repayment periods (3–5 years) tend to have lower interest rates.

·         Pro: You usually have the flexibility to choose the repayment period. Most people choose a period between 1–5 years, so that the monthly installments don’t affect their income in any large way.

3. Top Secured and Unsecured Loan Picks

Zillidy is one of the top Toronto companies which offer a wide range of secured loans. These include Canadian business loans for corporations of any size and personal secured loans. The collateral we accept at Zillidy includes personal possessions such as precious metals, jewelry, and high-end watches. Zillidy requires no credit check or financial history, thus the no-credit check business loans are perfect for any individual who doesn’t want their previous financial choices to impact their loan T&Cs.

HSBC is a Canadian bank which offers unsecured loans for any of your smaller needs. These personal loans have a typical repayment period of up to 5 years with weekly, bi-weekly or monthly repayment options. Even though you can choose between a fixed or variable interest rate, HSBC gives you the option to get preferential rates if you are an HSBC Premier or HSBC Advance customer.

{Source: http://www.zillidy.com/blog/secured-vs-unsecured-loans/}

Unsecured and Secured Loans - What Are They?

If you have been shopping around for a loan you have probably heard the terms unsecured and secured loans. Do you know the difference? Do you know which type that you need? Do you know which type you would qualify for?

It's difficult many times for the average consumer to wade through all of the terminology and have a real idea of what they need. Secured and unsecured loans can be broken down into really simple terms for you.

Secured Loan vs. Unsecured Loan: What is What?

Unsecured loans are those that do not need to be secured by anything, such as your home. With these loans, the lender believes that you will be able to repay the amount as promised. Unsecured loans are not difficult to come by, but you do have to have a good credit history, a low debt to income ratio, and you need to be able to provide your financial stability.

There are many different types of unsecured loans such as personal, student, personal lines of credit, and even some home improvement loans.

Secured loans are different in that the lender requires you to secure the loan with something, such as your home or your car. What this means is that you are providing collateral to the lender, which means if you don't pay they have rights to this object. Secured loans are more common as many people don't have the credit or the funds to get an unsecured loan and for many these are more appealing because they feature lower interest rates.

Lenders like these loans because they have some security in the fact that you will repay. Some examples of secured loans are home equity, home equity line of credits, auto, boat, home improvement, and recreational vehicle loans.

What type of loan is best for you depends on what sort of loan you are looking for. If you just need a personal loan for a couple thousand dollars to pay off a couple medical bills you may be able to do an unsecured loan if you have a decent credit history and you have a low debt to income ratio.

If you want to buy a home then you are looking at a secured loan. This doesn't mean that you need to put up collateral to buy the home, the home is the collateral. What this means is that if you don't pay on the loan than you lose the home.

The same can be said for a car loan, for a new or used car. When you buy the car with the loan you are securing them with the car, agreeing that if you don't pay them you will have the car turned over to the lender.

Secured Loan vs. Unsecured Loan lends themselves to different things. In most cases those life changing purchases such as homes and cars are secured and everything else may fall under unsecured if you have the credit history to back it up. There are pros and cons to both types of loans; you simply need to choose the variety that is best for you.

{Source: http://ezinearticles.com/?Unsecured-and-Secured-Loans---What-Are-They?&id=897607}

Secured and Unsecured Loans

In the second part I will discuss about Secured Loan and Unsecured Loan. The word "Unsecured" here does not mean unsafe, but without security. For more in let's compare these two types of loans from the point of understanding it first.

Secured Loan is one way of using a credit-value assets such as homes, cars, etc., as collateral for the loan, which we proposed and of course the loan, which we proposed should not be higher than the price that we mortgaged assets. The system works on this type of loan is, that when a borrower cannot cover the proposed loan in the collateral pledged will be taken by the borrower in exchange for covering the amount of the proposed loan before. Therefore, do not ever borrow if you not sure could return, or you will be seized assets instead.

To make things more clearly, I love this example:

- Your home mortgaged certificate to borrow money in the bank.

- Buying a new car on credit, so if it can not make the repayments then the car will be taken by the lender.

Secured vs. Unsecured Loans, Unsecured Loan to do this type of loan you do not need to use your assets, because these loans are given based on a survey of income and your expenses, usually seen from your credit history. The greater your income and electrical loads then likely you will obtain a loan that great anyway. Because there are no guarantees in this loan then the interest charged was also relatively large because the borrower does not have any guarantee if we do not pay the loan. When you cannot pay the debt then the borrower will sue you through the legal channels.

Here is an example of unsecured loans:

• Personal loans are the most common form of unsecured loan, which is referred to as a loan all purposes, they are ideal to buy products that you do not have ready liquidity.

• Card Credit card loans are the most flexible form of short-term loans with easy repayment options.

• Unsecured Business Loans, as the name describes is a type of loan that does not require collateral. It is usually at a higher interest rate and taken to tenor relatively smaller.

• Bank Overdraft also a form by which you can avail unsecured financing from your bank for your business.

(Source: http://talkaboutloan.blogspot.in/2013/07/loan-type-part-2-secured-and-unsecured.html}

Secured vs. Unsecured Loans

Secured vs. Unsecured Loans

There are two basic categories that most loan types fall into – Secured and Unsecured.

Secured Loan:

Secured loans are those loans that are protected by an asset or collateral of some sort. The item purchased, such as a home or a car, can be used as collateral, and a lien is placed on such item. The finance company or bank will hold the deed or title until the loan has been paid in full, including interest and all applicable fees. Other items such as stocks, bonds, or personal property can be put up to secure a loan as well.

Secured loans are usually the best (and only) way to obtain large amounts of money. A lender is not likely to loan a large amount with assurance that the money will be repaid. Putting your home or other property on the line is a fairly safe guarantee that you will do everything in your power to repay the loan.

Secured loans are not just for new purchases either. Secured loans can also be home equity loans or home equity lines of credit. Such loans are based on the amount of home equity, which is simply the current market value of your home minus the amount still owed. Your home is used as collateral and failure to make timely payments could result in losing your home.

Secured vs. Unsecured Loans: usually offer lower rates, higher borrowing limits and longer repayment terms than unsecured loans. As the term implies, a secured loan means you are providing "security" that your loan will be repaid according to the agreed terms and conditions. It's important to remember, if you are unable to repay a secured loan, the lender has recourse to the collateral you have pledged and may be able to sell it to pay off the loan.

Examples of Secured Loans:

·        Mortgage

·        Home Equity Line of Credit

·        Auto Loan (New and Used)

·        Boat Loan

·        Recreational Vehicle Loan

Unsecured Loan:

On the other hand, unsecured loans are the opposite of secured loans and include things like credit card purchases, education loans, or personal (signature) loans. Lenders take more of a risk by making such a loan, with no property or assets to recover in case of default, which is why the interest rates are considerably higher. If you have been turned down for unsecured credit, you may still be able to obtain secured loans, as long as you have something of value or if the purchase you wish to make can be used as collateral.

When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources. You will be judged based on the five (5) C's of credit -- character, capacity, capital, collateral, and conditions – these are all criteria used to assess a borrower's creditworthiness. Character, capacity, capital, and collateral refer to the borrower's willingness and ability to repay the debt. Conditions include the borrower's situation as well as general economic factors.

Examples of Unsecured Loans:

·        Credit Cards

·        Personal (Signature) Loans

·        Personal Lines of Credit

·        Student Loans (note that tax returns can be garnished to repay delinquent student loans)

·        Some Home Improvement Loans

{Source: http://www.greenpath.com/resources-tools/financial-library/loan-types/secured-vs-unsecured-loans}