The Difference Between Secured and Unsecured Loans:
If you are looking to borrow money, it is important to know your options and what it might take to qualify for a loan. Lenders will offer loans that are referred to as secured or unsecured. Secured loans generally offer lower rates and can be had by those with lower credit scores. Unsecured loans generally come with higher rates and require borrowers to have higher credit scores.
What are some other differences to consider?
Secured Loan vs. Unsecured Loan
Converting Secured Loans to Unsecured Loans
Depending on your situation, a secured loan may be converted to an unsecured loan. For instance, after you go through a bankruptcy, your only option to borrow money may be to open a secured credit card. However, if you make the monthly payments on time, it may be converted to an unsecured credit card. You may also be entitled to your security deposit back plus interest. You may also be able to convert an unsecured loan to a secured loan by working with your lender to either refinance the loan or convert it through the use of collateral.
Borrowing money may make it possible to make a large purchase, get out of a financial jam or allow you to expand your company. However, make sure that you know what you are getting yourself into ahead of time to ensure that you know what's on the line if you fail to repay your loan in full.
When a Secured Loan Makes Sense
Secured loans are good options for those who want to pay the lowest rates or get other favorable loan terms. Although you risk losing your collateral if you can't pay, getting a lower interest rate or longer loan term means that your monthly payment stays at an affordable level. In some cases, you want to secure a loan with collateral even if you have good credit as you may save money in the long run.
When an Unsecured Loan Makes Sense
Unsecured loans make sense if you don't have collateral to put up or you don't want to risk losing your home or car in the event you can't repay the loan. For instance, you may want to take out a business line of credit without possibly putting your family at risk if the company goes under. While you will pay a higher interest rate, some lenders offer introductory interest rates or other terms that make it easy to keep your balances in check.
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