Oct 22, 2019
Many people tend to question the difference between a secured and an unsecured loan. Deciding between the two can be difficult, but understanding the benefits and potential downfalls of each is important. Today we will be looking at what a secured loan entails.
A secured loan will require you to put up some form of collateral in exchange for the loan. Most lenders will ask you to put your home up for collateral. In the event that you cannot make your payments, the lender or bank can collect your collateral.
This can be a scary proposition for many people but it does come with a lower interest rate, which helps keep the monthly payments down. The reason for the lower interest rate is because the bank has the security blanket of having your collateral available to them.
A secured loan is also a good way to build credit. As long as you make your payments on time, your credit score will increase, assuming you are not defaulting on any other payments.
A few types of secured loans are available to borrowers. As mentioned above, your mortgage can be a secured loan because it could be put into foreclosure if you are not making your payments. Car loans are another type of secured loan you could consider. The car itself would be the collateral and could be repossessed if payments are missed.
Secured credit cards are another option you borrow money for. Most banks or lenders will require you to make a deposit towards the limit of the credit card to make sure the money is being used properly. Many people choose to do this to help their credit scores.
This is a good option if you were unable to land an unsecured loan. As with any kind of loan, this can help you out of a jam financially and can benefit you in the long run, as long as you make all your payments. Consider your financial situation before agreeing to a secured loan.