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. How do construction loans work?

    Construction loans are obtained either by the prospective home owner or the actual builder. There are two types of construction ... Read Answer >>
Related Articles
  1. 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.
  2. Personal Finance

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  3. 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.
  4. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  5. 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.
  6. Personal Finance

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  7. 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. ...
  8. Small Business

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  9. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
RELATED TERMS
  1. Loan Stock

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

    Property or other assets that a borrower offers a lender to secure ...
  3. Character Loan

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

    A loan that combines two or more federal education loans into ...
  5. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  6. Lender

    Someone who makes funds available to another with the expectation ...
Hot Definitions
  1. Salvage Value

    The estimated value that an asset will realize upon its sale at the end of its useful life. The value is used in accounting ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Promissory Note

    A financial instrument that contains a written promise by one party to pay another party a definite sum of money either on ...
  4. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
Trading Center