The Facts About Secured vs Unsecured Loans
A secured loan is a loan for which the borrower pledges property as security to ensure the repayment of the loan. The property offered as security for the loan is often referred to as collateral. Most lenders require some type of collateral to secure a larger loan in addition to the borrower’s promise to repay. Cars, trucks, boats, equipment, and household goods are often used as collateral. Loans used to purchase goods are usually secured by the item being purchased. The advantages of a secure loan are normally the ability to borrow more money for a longer term, and often at a better rate. The main disadvantage of a secured loan is the potential loss of the property pledged as collateral if you default on the loan.
An unsecured loan, often called a signature loan, is a loan for which the borrower does not offer any additional security beyond their written promise to repay the loan in accordance with the loan agreement. Most lenders only offer to make an unsecured loan for smaller loans. Since the loan is not secured by collateral, there is a greater risk for the lender. This typically results in higher interest rates for unsecured loans.
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