As you shop around for loans, you’ll find two major types: secured loans and unsecured loans. While secured loans are tied to collateral, that is, something of value like your house or car, unsecured loans are not. If you fail to make payments on a secured loan, the lender can seize the pledged collateral. This means secured loans are less risky for lenders and typically can come with lower interest rates than secured loans.
You can’t get a secured loan unless you back it with collateral. Examples of collateral include a house, car, boat, cash in a savings account or certificate of deposit, fine art, or jewelry. If you are approved for a secured loan, it will be your responsibility to repay it based on the loan contract terms to make payments, or the lender will likely seize your collateral to recoup some of their losses.
A secured loan requires that your collateral is put on the line. With an unsecured loan, you won’t need any collateral. Lenders often look for good credit to approve an unsecured loan. If you don’t have the best credit score, you may find getting approved for a secured loan easier than an unsecured loan if the collateral you want to pledge is acceptable to the lender.
Since a secured loan is considered less risky for a lender, loan rates are typically lower than rates for unsecured loans. If you qualify for a secured loan with a competitive interest rate, you may save a substantial sum of money over the life of the loan. Remember to repay the loan on time, or your lender may seize the collateral. This can be a real problem if your collateral is your house, car, or cash in a savings account.
If you believe you’re a good candidate for a secured loan, follow these steps.
If you want to land a loan at a low-interest rate but don’t have good credit, a secured loan is likely the way to go. This is particularly true if you know you’ll be able to repay it on time-based on the terms of your contract. Be sure to carefully review all available options before deciding which is best for you.
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