What’s the Difference Between Secured & Unsecured Loans?

What’s the Difference Between Secured & Unsecured Loan? - Loantec

When you start looking into financing, you’ll quickly learn that there are many different options for loans. By learning the difference between secured and unsecured loans, you can make a more informed decision. So, let’s take a look at the differences to find out which one will be best for you.

Loantec is here to help you secure the best loan for anything you need. Our Finance Technicians will explore all your lending options to find the best deal for you. Fill in our pre-qualification form, and we’ll help you secure the best funding for your needs.

What Is a Secured Loan?

A secured loan is financing that’s protected by collateral. This gives lenders something to repossess if you default on your loan. The lender is taking on less risk with a secured loan as compared to an unsecured one. This typically results in favourable conditions, such as lower rates, higher loan amounts, and the option for longer repayment terms.

Types of Secured Loans

Most loans for new items, like houses, cars, trucks, and equipment are classified as secured loans. Although you’ll typically have the option to use security for most types of loans.

Mortgage

When you apply for a home loan, the house you’re building or buying is the security on the mortgage. If you default on your repayments, your home is at risk of being taken by the lender.

Home Equity Loan

Like a mortgage, a home equity loan uses your house as a security on the loan. The amount you can borrow is based on how much equity you have. If you haven’t completely paid off your mortgage, you’ll have 2 loans you need to repay or risk losing your house.

Car Loan

When applying for a car loan, the lender will use the car as security for the loan. Even though the value of the car may drop, it won’t affect the loan.

Secured Personal Loan

Secured personal loans are lump sum payment that’s secured by an asset you own. This security can be anything of value the lender accepts as collateral. Typically, these loans are secured with large items such as caravans, boats, and trucks.

What Is an Unsecured Loan?

An unsecured loan is a type of financing that isn’t secured by any collateral. Lenders are taking on more risk with unsecured financing because there’s no asset to recover if you default on the loan. Resulting in less favourable terms and conditions.

Types of Unsecured Loans

Unsecured loans are usually for smaller amounts. Ranging anywhere from a few hundred to tens of thousands to cover holidays, medical costs, and any unexpected expenses.

Credit Cards

There are several different types of credit cards, but generally, you’ll have a minimum amount you’ll need to pay monthly on the card, including interest. Credit cards often have a higher interest rate compared to other financing options.

Unsecured Personal Loan

There’s no need to risk any of your assets as a security when you get an unsecured personal loan. Just apply, and if you get approval, the lump sum will be deposited into your account.

Loantec’s team will take the time to work through your situation and figure out the best type of financing for you. Contact our Finance Technicians using our pre-qualification form, and we’ll get you the lowest interest loan that’s available to you.

Secured Vs Unsecured Loan

At Loantec, we want you to have all the factual details about your financing. So, let’s go through the pros and cons of secured and unsecured loans to figure out what type of financing is best for you.

Typically, if you’re getting a loan for a house or car, you’ll be getting a secured loan. On the other hand, credit cards are usually unsecured. When you get a personal loan, you’ll have the choice between an unsecured and secured loan.

Secured Loans Have a Lower Interest Rate

By putting up some collateral for the loan, you’re likely to get a lower interest rate. This results in lower monthly repayments and less money spent over the life of the loan.

You’re More Likely to Get Approval with Secured Loans

If you have debts or a poor credit score, a lender is less likely to offer you a loan, but with a secured loan, there’s a way to recoup the funds if you default, so it’s more likely you’ll get the funding.

The higher the loan amount, the lower your chances of approval. So, if you’re looking to get a large amount, a secured loan will improve the likelihood of getting approval.

You Don’t Risk Losing Your Home with Unsecured Loans

When you put something up as security, you’re agreeing to give it to the lender to cover your debts if you default on the loan. Lenders will use other methods to try and recoup the funds if you’ve chosen the unsecured option.

When you get financing, you should always be sure you can make the repayments, but you should be extra certain if you’re putting your house up as collateral.

Knowing the difference between secured and unsecured loans will help you when you’re trying to get financing. You’ll know the advantages and disadvantages involved with the two options, and this gives you the knowledge to make the best decision.

By working with our Finance Technicians, you’ll be able to get the best loan with the lowest interest rate. Just fill in our pre-qualification form to secure your financing today!