Secured loans vs. Unsecured loans: Which are better?
When borrowing should you take out an unsecured loan or a secured loan? Unsecured loans often grant more freedom, while secured loans give you lower rates. Today, we’ll discuss in detail how unsecured loans and secured loans differ, as well as go over the different examples under each one.
So you need a personal loan, but you’re not sure where to start. There’s a lot of options out there.
One basic question many who first start borrowing have is, “should you get a secured loan or an unsecured loan?” We’re going to break the two down for you here to help you understand which is right for you.
An unsecured loan does not require collateral or any form of security deposit. They instead qualify you based on measures of your reliability like income and credit score. The tradeoff of unsecured loans is that you usually receive higher interest rates on your loans.
Here are a couple of common types:
A credit card is one of the most basic examples of an unsecured loan. When you use a credit card you borrow from a bank or a financial service and agree to pay them back what is due plus all agreed-upon charges after a given period.
Generally, your credit limit is set based on how trustworthy your provider thinks you are.
Does a personal loan have to require collateral? Absolutely not.
A personal loan can either be unsecured or secured and is more often the former than the latter.
Small unsecured personal loans have always been offered by major lenders like banks. But they have also grown increasingly common with the rise of online lenders like peer-to-peer lending platforms. They source small to medium-sized loans directly from individual investors whom you repay directly.
Usually, these platforms use a similar credit assessment to the ones done by banks.
A student loan is a type of loan that aims to help students with their educational financing. If you apply for a student loan, you can use it to either pay for tuition or get supplemental tools such as books and other school supplies.
A secured loan is a type of loan that requires you to put up collateral. Collateral is usually a personal asset – like a car or even a house – that’s used as payment to the lender if you don’t pay back the loan.
While secured loans usually offer higher threshold amounts and better rates, they also require more careful consideration.
Used for purchasing real-estate or property, mortgage loans eliminate the need to pay the entire purchase price up-front. When you take out the loan, you put up the house or property you purchase as collateral.
You can then pay the lent amount back over a set number of years until you fully own your property. If you fail to repay, then the bank can take your house back from you.
An auto-loan functions in the same way a mortgage does but instead you put a vehicle or automobile up as collateral to secure the loan.
Vehicle loans are useful if you need to purchase a car for studies, work, and/or personal use. Though not the same for all car models, vehicle loan terms usually range from 24 to 60 months.
Secured credit cards
Secured credit cards are like regular credit cards, but are usually issued to those who have no credit history. They collateralize all debt with a cash reserve you put up beforehand.
Secured credit cards are a good way to build up a credit score and require a security cash deposit as collateral. Deposit amounts can vary between $200 to $2,500. Like credit cards, secured credit cards also bill monthly. And if you don’t repay, they take it out of your cash deposit.
Generally secured personal loans are a little harder to find. Banks traditionally will let you secure loans against assets you already own through the bank like a savings account or a CD.
However, today you can even apply for secured personal loans against your cryptocurrencies through online lending sites, like MyConstant.
Choosing the right lending method
The difference when choosing between an unsecured loan or a secured loan is to assess which among the two offers more flexibility given your current status and needs. Carefully consider the following:
- Figure out what you need
Why are you borrowing? Do you need a large amount or a small amount? Is it an emergency? Can you pay back soon? Take stock of what assets you have to secure a loan as well as which platforms or avenues (E.G physical vs. digital) you are more comfortable working with.
- Calculate costs
Certain loans, especially secured ones, have miscellaneous charges. Additional costs that add to the loan come in the form of processing fees, statutory charges, and fluctuating interest rates.
- Figure out your timeline
Loans range from short terms like a month or two to long term (think 40-year mortgage). It’s best to fully identify what timeline is most aligned with your needs and work from there.
Get some of the best rates on flexible-term loans today with MyConstant
As loan accessibility from traditional lenders has gone down, there has grown an increasing number of ways to get unsecured loans and secured loans online.
MyConstant is a P2P lending site that allows you to undertake flexible, electronic-based loans backed by a portfolio of over 70 cryptocurrencies. All online. Apply for and get your loan in minutes at 6% APR with no credit scoring required.
You can withdraw your funds in fiat, stablecoin, or even in crypto. You can pay up early and toggle auto top-ups to make sure your collateral value stays level. Most importantly, we offer 24/7 customer service for any issue you may have.
Interested? Check out how much you’re eligible to borrow on our website today.
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