What is the difference between a Secured and an Unsecured Loan?

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Difference Between Secured and Unsecured Loans

When you are in need of money for any type of emergency, you look to borrow money from a bank or a lender. While taking the loan, there are certain conditions attached to the repayments. These conditions define what type of loan it is. Comparatively, there are two types of personal loans you can take – Secured and Unsecured loans. Understanding these becomes crucial to assess what condition fits your loan requirements best.

Secured Loans

Secured loan, as defined by the term, is a type of loan that is backed by, or taken against, an asset. The asset is the security for the loan; that means if you don’t repay the loan, then the bank or the lender can repossess the asset which they sell to pay off the loan. The lender holds the title or the deed, until you have repaid the loan in full.

Examples:

You usually need to use security like a car in the case of an auto loan, or a house in the case of a mortgage.

Advantages Of Secured Loans

  • By using security, you become more eligible to get the loan.
  • The loan amount could be higher, as you are offering security.
  • Repaying such types of loans timely helps you to improve your credit score.

Unsecured Loans

When you have not tied any of your assets as security on a loan, then it is referred to as an unsecured loan. This way, the lender cannot seize any of your property. When you are looking to get an unsecured loan, the amount you may get may be smaller in comparison to secured loans, as the lender or the bank does not have any security to recover the money in case you default.

Examples:

Advantages Of Unsecured Loans

  • When you are not attaching any asset there may be less paperwork.
  • You can get a loan without having a registered asset.
  • Increases your eligibility for another small personal or cash loan upon completion of your loan.

Understand your requirements thoroughly and assess how much money you need before deciding which loan fits your needs.