The Unknown Differences Between Secured and Unsecured Loans
Looking to take out a personal loan? If so, then one of the first decisions you’ll be faced with is whether you wish to apply for a secured loan or an unsecured loan. Despite the terms being similar, these two loan types differ in some major ways. By having a better understanding of the differences between secured and unsecured loans, you can make a better informed decision regarding which is right for you.
Key Differences Between Secured and Unsecured Loans
The main difference to remember between a secured and unsecured loan is that a secured loan is essentially backed by some kind of asset or collateral. This is usually something you own that has significant value, such as a vehicle, a piece of property, or even a cash deposit. When you take out a secured loan, you will be required as part of your loan terms to provide the collateral up-front. If for any reason you are unable to repay your loan, the lender can then take possession of the collateral as a means of paying off some or all of your outstanding debt balance.
With an unsecured loan, you’re not required to put down any type of collateral. As a result, however, you may need to have a higher credit score in order to get approved for an unsecured loan—or you may end up getting approved with a higher interest rate than you would with a secured loan.
Which Borrowing Option is Right For You?
Generally, a secured loan is best for those who want to lock down the most favorable loan terms and those who have something of value to place as collateral—whether that be a cash deposit, a property deed, or even a vehicle title. Regardless of the type of loan you decide to apply for, it’s important to understand your loan terms and make sure you feel comfortable in your ability to repay the loan within the terms set forth in your borrowing agreement.
At Santa Clara County Federal Credit Union, we offer some great loan options that you can secure using deposit funds. In exchange, you’ll enjoy a lower interest rate as you continue to earn competitive dividends on your account. Contact us today to find out more about our secured loan borrowing options!