Secured Loan Vs Unsecured Loan
Secured And Unsecured Loans
We are here to help you to understand the difference between secured loans Vs unsecured loans, with secured loan collateral used to secure the loan.
The borrower must give the lender an asset that will guarantee the loan, just in case they are unable to pay back the loan.
When the borrower pledges their asset, it must be worth at least the same amount that they are borrowing, but usually, it is worth more.
Secured Loans Vs Unsecured Loans
Unsecured loans do not need to have any assets to pledge for the loan, but unsecured loans are difficult to get, and you must have really good credit to qualify for them.
The lender will assess your credit score to determine the risk and eligibility to see if you can qualify for the unsecured loan.
With unsecured loans your credit history and your personal financial background will be taken into consideration when you apply, to determine your creditworthiness.
Types Of Secured Loans
Payday loans are secured loans, and people use them with they need to get some fast money. A payday loan is on average $350, and it will need to be repaid by the next payday, they are short-term loans.
The amount of the payday loan will depend on the amount of the next paycheck. Also, some people also use payday loans for their tax refunds too.
Payday loans, it is one of the fastest ways to get a few hundred dollars, you will need to write a check dated two weeks ahead till your next payday.
If you wish to not pay off your payday loan, you can roll it over for a few more weeks, but you must remember that payday loans’ interest rates are very high, so they can become very expensive.
You can also get a pawn loan, and the pawnshop will take your asset to hold against your loan, they are expensive, but they are secured loans, and you can get same-day funding with them.
Many people will turn to credit card loans, they are unsecured loans, and they are commonly used. You can pay back the balance monthly, and the interest is low.
The problem with credit card loans is that you can’t get enough money from them, the interest rates are good, but if you are late with your payments, they do have some high fees, and they can also damage your credit score.
Getting bad credit loans that are unsecured, can be difficult, but you can get bad credit loans but not many banks will offer them.
With secured loans, you will be required to make monthly payments, the same as with a credit card loan, the interest set with your secured loan, will not fluctuate throughout the term of the loan, but with credit cards, there can be different factors that will affect the monthly payment.
Both loans will have late payment fees, but with credit card loans, your rate can change if your credit score changes, and you are on a variable interest rate.
With secured loans, you will get a fixed amount of money, depending on the asset value, with credit cards you will need to fill out more paperwork to get more money.
Other Types Of Secured Loans
The most common types of secured loans are Mortgage and auto loans. The mortgage loan is secured against the house, and the rate is typically 30 years long.
And with auto loans these are used to purchase a car, it can be a new car or a used car, and the terms are usually 48 months long.
How Much Money Can I Get With A Secured Loan?
The amount of money that you can get with a secured loan will all depend on what type of loan you get, payday loans are only for a few hundred dollars, but pawn loans can be for thousands of dollars, as can car title loans.
A mortgage loan can be hundreds of thousands of dollars, and the auto loan can be $30,000, it will depend on how much your credit will qualify you for.
Benefits Of Secured Loans
Secure loans are risky, as you are pitting up collateral to secure the loan and if you default, you will lose the collateral.
With unsecured loans, there are no collateral requirements so you do not have the risk of losing your property if you fail to make the monthly payments.
With secured loans, you do not have to have good credit, people with bad credit will often use them to get the money that they need.
Secured loans can get you more money than unsecured loans, as the lender will have the security of the asset. With secured loans like auto title loans, you can get from 24 to 48 months to pay back the loan, this will keep your monthly payments within your monthly budget.
Unlike unsecured loans, secured loans can offer fast funding, and with auto equity loan requirements, you can have the option to get same-day funding.
With secured loans, the collateral will be the deciding factor on how much money you will qualify for with having to need good credit to qualify, and very little documentation and requirements.
Secured loans, also give people a chance to get the money that they need, but also will help them to improve their own credit scores.
Defaulting On Secured Loans
Defaulting on your title loan or your secured loan can hurt your credit score, as the lenders will report to the major credit bureaus, Experian, TransUnion, and Equifax.
Missing payments or defaulting on your secured loan will hurt your credit score, and it will make it more difficult in the future to apply to buy a new car or a house.
There are no title loan forgiveness programs, so if you cant pay for your title loan, then it would be best to sell your vehicle and pay off the lender.
Some lenders will also take you to court to recover the money that you owe, so not only do you hurt your credit score, but you can also have a judgment on your credit score.
With a car title loan, if you are failing to make your monthly payments, the lender can start the process of repossessing your vehicle, after multiple missed monthly payments.
Once the vehicle is repossessed, the lender will give you 2 weeks to pay off the loan or bring the account current, or they will sell the vehicle.
You do have the option to file for bankruptcy with your title loan, but doing this will devastate your credit for over 5 years.
Getting Secured Auto Title Loans
For getting an auto title loan, you need to have enough equity in your vehicle for you to qualify, the lender will hold on to the title as the collateral.
Each month you will make your monthly payment, some of the payments will go towards the principal balance and some will go towards the interest.
With a title loan, the lenders are concerned about your ability to repay the loan, and your equity value, so they will ask for your proof of income, to make sure the monthly payments will not be a problem for you to pay.
If you have bad credit that will not prevent you from getting the money that you need on the equity of your vehicle.
The approval process is fast too, you can apply for your online title loan application, and submit all of the supporting documentation by using your smartphone.
Get Qualified For A Title Loan
If you want to get qualified for a car title loan, you will need to have a vehicle that has enough equity in it, you can look up your vehicle equity by using the wholesale value on the Kelly Blue Book.
If your vehicle has the required equity, then you will also need to provide a title in your name, your driver’s license, your proof of income, your proof of residence, and detailed photos of your vehicle.