Secured loan vs. unsecured loan: what’s the difference?
When you’re borrowing money, you’ll likely need to make a decision about a secured loan vs. unsecured loan. What’s the difference? Here’s an explanation, and a few credit counseling tips about choosing a secured loan vs. unsecured loan.
A secured loan is one that is connected to a piece of collateral – something valuable like a car or a home. With a secured loan, the lender can take possession of the collateral if you don’t repay the loan as you have agreed. A car loan and mortgage are the most common types of secured loan.
An unsecured loan is not protected by any collateral. If you default on the loan, the lender can’t automatically take your property. The most common types of unsecured loan are credit cards, student loans, and personal loans.
Secured loan vs. unsecured loan: which is right for you?
There are a couple factors that go into deciding on a secured vs. unsecured loan. A secured loan is normally easier to get, as there’s less risk to the lender. If you have a poor credit history or you’re rebuilding credit, for example, lenders will be more likely to consider you for a secured loan vs. an unsecured loan.
A secured loan will tend to also have lower interest rates. That means a secured loan, if you can qualify for one, is usually a smarter money management decision vs. an unsecured loan. And a secured loan will tend to offer higher borrowing limits, enabling you to gain access to more money.
Getting help paying off a secured loan vs. unsecured loan.
If you have loans and you’re having trouble paying your bills, it’s usually more important to first pay down a secured loan vs. unsecured loan. If you fail to make your car payment, for example, you may end up losing your vehicle. But keep in mind failing to make timely payments on an unsecured loan can drive you deeply into debt, as the interest rates on an unsecured loan may be quite high.
If you find yourself with too much debt and you’re not sure what to do, American Consumer Credit Counseling (ACCC) can help. As a nonprofit organization, we provide access to credit counselors who help consumers just like you find ways to manage money more effectively and pay off their debts.
What do credit counselors do? At ACCC, our credit counselors offer free debt advice and connect you with the best resources and solutions for your financial situation. Contact us today for a free, no- obligation consultation. Imagine how great it will feel to finally be on the road to paying off your debts and having a debt-free future!
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