Secured Personal Loans Vs. Unsecured Personal Loans

If you're in the market for personal loans

, you may be debating between choosing ones that are secured and unsecured. Truly, it can be quite a conundrum, as there are definite "pluses" and "minuses" related to each option.

Here, we'll look at some of the pros and cons of secured versus unsecured loans to help you make the best decision possible for you and/or your household.

Secured Personal Loans:

Pros -

All secured personal loans allow you to leverage items or cash (as in savings accounts or certificates of deposit) against the cost of the funding. Thus, you can "put up" your house, car, or investment items against the amount of the personal finance. And it's not unheard of for friends or family members to leverage their own personal items to help the primary loan signer, though this can be a tricky prospect for all involved.

This means that you'll likely be able to take out more money in secured loans because the financial institution's risk is lowered as a result of the secured loans process. (Of course, if you renege on your payment, the bank or lender will be able to take the property you put up as collateral for the secured personal loans.)

Most secured personal loans are for larger amounts than their unsecured counterparts. Additionally, the interest rates are lower (thanks again to the lowered risk taken by the financial institution.)

Cons -

If you cannot make payments on your secured loans or if you skip or miss monthly repayments, your interest rate may skyrocket. Also, if you habitually are unable to make your personal finance payments in full, you may lose your collateral. Additionally, if you have someone co-sign your secured loans, he or she might be drawn into a lawsuit if you are not able to keep up with your repayments.

Unsecured Personal Loans:

Pros -

Because unsecured personal finance requires no collateral, they are good for people without any current assets. Thus, the young individual who does not own property or transportation may still be able to borrow money to pay for an education (which will enable him or her to someday purchase those assets thanks to a higher paying job.) Similarly, the individual who just went through a messy divorce and "lost everything" can use unsecured personal loans to help build a positive credit rating... as well as a new life.

Unsecured loans are equally useful for people with a bad credit history or who have filed for bankruptcy who just need to take out a small amount of funding. Not all lending institutions will offer secured loans to these folks, but those who do offer plenty of options and amount ranges.

Cons -

The interest rates on unsecured personal loans are notably higher than those of secured personal loans, namely because the financial institution is in a riskier position. In fact, they may be so much higher that the total loan amount becomes prohibitive. Still, they can be an ideal solution depending on a customers' history and requirements.

by: James Copper

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