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Secured Vs Unsecured Loans | Complete Guide


If you are looking to borrow money online or need to find a quick cash loan in order to pay an unexpected expense such as a car or medical bill expense then you will be faced with many different loan options, ranging from payday loans online to installment loans and cash advances. However, one common question that people are faced with when looking to borrow money in any form is whether or not to apply for a secured loan or an unsecured loan.

All loans that you will take out will either be in the form of a secured or unsecured loan and therefore you should make sure that you are picking the right one for you and your circumstances, as each type of loan comes with its own distinct advantages and disadvantages. Choosing between secured and unsecured loans should not be a fast decision and you should always seek out any alternative loan options before applying online for your chosen loan type.

The difference between these two loans is important to understand before taking out a loan. It is also important to have an idea of whether you need a smaller loan such as a $500 loan online or a much larger loan like a $20,000 loan. This guide will explore what a secured loan is and what an unsecured loan is, to help you decide which loan type is most suitable for your needs and requirements and therefore which type is most suitable for you and your financial circumstances, be they an emergency, or a more long term financial problem.

What Is A Secured Loan?

Secured loans can also be referred to as homeowner loans or title loans; this is because the debt or the loan is linked directly to an asset such as a property such as a home, or the title deeds to a vehicle, thus the name ‘title loans.’ In most cases the loan is linked to the borrower’s property as there are many loans which are able to be linked to and secured against your home or property.

A secured loan can be secured against any type of valuable collateral such as a car or a luxury item such as artwork. However, secured loans in the USA are nearly always taken out by people who own a home and therefore the property is used as collateral.

This is helpful because it allows you to borrow larger sums of money, with potentially lower risk to the lenders providing the loan. Lenders have the security of knowing that they can reclaim the value of the loan if you default by repossessing your home and therefore they are often more likely to be willing to offer larger amounts of money and lower APR rates.

Am I Eligible For A Secured Loan?

Secured loans are often the only option for people who do not have a good credit history but who own a property. As your property acts as security on the loan, you will be more likely to qualify for a secured loan than an unsecured loan with bad credit. Repayment periods are often longer on secured loans than unsecured loans as well because of the security of being able to reclaim the house.

The amount you borrow and the duration of loan does as always depend on your own financial circumstances and past credit rating.

What Can I Use A Secured Loan For? 

As secured loans requite collateral, it is important to consider what you are using the loan for as if unable to repay your asset will be repossessed. Secured loans are a great choice for more long-term financial projects, such as home renovations, consolidating debt or even investing in an additional property.

Secured loans may be a great choice for those with bad credit also wanting to fix their credit score, as the long-term payments could potentially help this.

What Is An Unsecured Loan?

Unsecured loans, often referred to as ‘unsecured personal loans’ on the other hand are another option to consider and are often marketed as ‘personal loans.’ These are the most popular type of loans and most payday loans will fall into this category.

Unsecured loans allow you to borrow sums usually between $100 – $35,000 but the APR on these loans will be higher than that for secured loans. These types of loans will usually only be offered to those who have a fair or somewhat positive credit score, this is because lenders feel that there is more risk associated to giving an unsecured loan to someone with a bad credit history.

The better your credit score, the more reliable you look to lenders. Unsecured loans are flexible because lenders will allow you to choose how long you want to repay and it can be just for a short term fix such as a payday loan. Secured loans on the other hand, will often have a minimum duration of at least five years.

Who Can Get An Unsecured Loan? 

With Kallyss, you can request a range of unsecured loans and, if you have the money early you can repay the loan in full , for example on your next payday, paying off and clearing the entire loan earlier than you planned , with no early repayment fees to worry about.

Most importantly, unsecured loans, unlike secured loans, do not require you to put up any asset as security or collateral, such as your property as security or collateral as would be the case when it comes to secured loans in the USA. Lenders believe they do not need this guarantee in order to be repaid by you and therefore there is less need for a collateral such as a car or a house.

What Are Unsecured Loans Used For? 

Unsecured personal loans, in comparison to secured loans, can be used for a variety of personal reasons. Whether you have unexpected medical or veterinary bills to pay for, or need to fix your vehicle so you can continue getting to work, unsecured loans can be used for various matters.

Unsecured personal loans can even be used for more personal reasons, such as helping buy gifts one Christmas season so that you can stay on top of your other ongoing monthly bills and payments. As unsecured loans do not require collateral, it means that the options are wider. Nonetheless, it is important to check that you can afford to repay the loan.

What Type Of Loan Should I Get?

Before making a decision for what type of loan to go for, it is important to understand your circumstances properly:

  • How long do you want to borrow for  – Knowing how long you need the money for and when you can realistically pay it back to the lender is important in deciding between a secured or unsecured loan; if you are looking for something shorter-term then a unsecured loan is probably the way to go, in the form of a payday or installment loan for example
  • How much do you want to borrow – If you are looking to borrow a large amount, more than $35,000 then you will probably need to go for a secured loan because lenders will need collateral to give up the money
  • Your financial circumstances – You will always need to consider whether your personal and financial circumstances allow for you to reasonably borrow money, whether you need to borrow $1,000 or even if you just need a $100 loan. You should only ever borrow money in the form of a personal loan if it is a financial emergency and if you have considered all your options

What Are The Alternatives To Secured And Unsecured Loans?

If you do not think you would be able to repay your secured or unsecured loan then you should not get one. Failure to repay can often cause bad consequences such as court time or in the most extreme cases, jail time.

Failure to repay a secured loan can lead to the repossession of your house by the lender and therefore you should only enter into a secured loan if you know you will be able to repay it over the agreed upon time. Alternatives to these types of loans is borrowing from family and friends, guarantor loans or remortgaging. These are all options to look into if you believe a secured or unsecured loan is not right for you.