So, you want to get a loan and don’t know what next. You are torn between a secured loan and an unsecured loan. What is the difference?
What is a Secured Loan?
A secured loan is usually a loan given against collateral. For instance, if you want to acquire a loan against a land title, a house, or a log book. The collateral in this case is your asset.
Secured loans mean in case you are unable to pay, the lender has authority to repossess the asset as payment for the loan. After repossession, the lender is allowed to sell the asset to recoup the defaulted amount.
However, in some cases, the asset does not fully cover the pending amount, so you are still on the hook for the remaining amount.
What is an Unsecured Loan?
Unsecured loans are the opposite. In this case, the loan has no collateral. Therefore, the lender cannot seize your property and sell it in case you default on paying.
For instance, students get unsecured loans to support them through college. They are required to pay back these loans after they get employed. However, many default because there are no personal assets attached to the loan and therefore no pressing need to pay back.
If you are looking for a personal unsecured loan, you need to have good credit and a track record of paying on time. Unsecured loans are difficult to obtain especially because the lender has no guarantee or security in case of defaulting.
Secured or Unsecured Loan: which is right for you?
As earlier mentioned, it is generally difficult to obtain an unsecured loan. You have to have an impeccable credit score. Also, unsecured loans tend to have higher interest rates since the lender is taking a bigger risk.
Secured loans are easier to obtain. Plus, they have lower interest rates than unsecured loans. However, it is much riskier to default on an unsecured loan. This is because the lender will automatically seize your assets and more often than not, sell them for way below market price.
Why you need us
At Hyaat Capital, we understand finance. We can advise you on what to do concerning the secured and unsecured loans and ensure you do not end up in a trap. Talk to us today.