A:

Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest rates of secured loans are lower and the repayment periods are longer. Secured personal loans are typically the best and only way for borrowers to receive large sums of money; the “secured” aspect implies there is a guarantee the loan will be repaid.

Secured Loans and Collateral

Typically, the way this security is enforced is through a form of collateral such as a house, car or other form of valuable personal property. Secured loans may also be ideal because they come with lower interest rates, higher borrowing limits and longer repayment terms. Examples of secure loans include mortgages, home equity lines of credit, or automobile, boat or recreational vehicle loans.

Unsecured Loans and the Lending Perspective

Unsecured loans are often used for credit cards, personal loans, personal lines of credit and student loans. Unsecured loans are more expensive for the borrower in the short term because most of the risk is shouldered by the lender; if the debtor fails to pay back the loan, the lender is unable to take possession of the borrower's assets as a way of paying itself back.

Secured loans offer more advantages, but the risk is leveraged on to the borrower. Access to collateral is not always available, in which case unsecured loans may be the only option. However, because risk is carried disproportionately by the borrower, secure loans are preferable for lenders. If the borrower meets the minimum requirements, lenders are often eager to extend secure loans.

RELATED FAQS
  1. What are the typical requirements to qualify for closed end credit?

    Learn what closed-end credit is, and the various requirements that borrowers must meet in order to obtain a closed-end credit ... Read Answer >>
  2. What are some examples of debts that I can consolidate?

    Read about different kinds of debts than can be combined into a consolidation loan, including unsecured debts, secured debts ... Read Answer >>
  3. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
Related Articles
  1. Investing

    What is an Unsecured Loan?

    An unsecured loan is based on the creditworthiness of the borrower, and has no collateral securing the loan.
  2. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  3. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
  4. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  5. Personal Finance

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  6. Personal Finance

    All About Government Loans

    There are many reasons to seek a government loan rather than one from a private lender. Government loans typically have low interest rates and offer fixed or subsidized options, as well as deferred ...
  7. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
  8. Managing Wealth

    Personal Loans: Compare the 6 Biggest Banks

    Need a personal loan? You may stop by one of these big banks for help. Their offerings vary in size, rates and loan types, which means you have options.
  9. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  10. Investing

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
RELATED TERMS
  1. Unsecured Loan

    A loan that is issued and supported only by the borrower's creditworthiness, ...
  2. Loan Stock

    Common or preferred stock shares that are used as collateral ...
  3. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  4. Loan Commitment

    A loan commitment is a loan that may be drawn down or is due ...
  5. Character Loan

    A character loan is a type of unsecured loan that is made on ...
  6. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
Hot Definitions
  1. Collateral

    Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan ...
  2. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
  3. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  4. Aggregate Demand

    The total amount of goods and services demanded in the economy at a given overall price level and in a given time period.
  5. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  6. Blue Chip

    A blue chip is a nationally recognized, well-established, and financially sound company.
Trading Center