Understanding the difference between secured and unsecured loans is an important step on the path to financial literacy.
When considering your credit options, you may find yourself looking at unsecured vs. secured loans. Knowing your options, their pros and cons, and when to use these can empower you to make sound financial decisions that can improve your life.
What is an Unsecured Loan?
An unsecured loan is any loan where the borrower is not required to put up any form of collateral. In more simple terms, it’s a loan made based solely on you giving your word that you will repay it.
The most obvious advantage of unsecured loans is that the borrower doesn’t have to risk their existing assets to complete the deal. These loans are often approved faster because there is no need to assess the value of the collateral, and they are typically for smaller amounts.
Examples of unsecured loans include credit cards, student loans, and personal or signature loans from your local bank or credit union that do not require collateral.
What is a Secured Loan?
Secured loans are the exact opposite of unsecured loans. They are loans made with some asset put up as collateral to protect the lender against default.
Secured loans might sound more complicated for borrowers, but they often offer advantages like higher borrowing limits, lower interest rates, and longer repayment terms.
Examples of secured loans include home mortgages, home equity lines of credit, auto loans, and recreational vehicle loans, as well as any bank loans that require some form of collateral to guarantee them.
UFS can help you access various types of unsecured loans and lines of credit, including options to borrow as much as $250k with interest rates that start under 6%.
Apply for an unsecured loan with UFS today to benefit from our professional expertise in non-collateralized lending.
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