Is a Personal Loan Secured or Unsecured?

There are two types of loans: secured and unsecured. There are important differences between these loan types, so let's dive into the details to make sure you select the type that best fits your needs.

Is a Personal Loan Secured or Unsecured?

In most cases, a personal loan is unsecured. Here is why: 

• Unsecured personal loans do not require you to pledge any assets, like a car or house, to back the loan. Lenders approve these loans based on your creditworthiness, income, and financial history rather than your ability to offer collateral. This makes unsecured loans more accessible to borrowers who may not own high-value assets.
• Lenders primarily evaluate your credit score, debt-to-income ratio, and employment status when approving an unsecured personal loan. A good or excellent credit score can help you qualify for better terms, including lower interest rates and higher loan amounts.
• If you default on an unsecured loan, the lender cannot seize your property directly. Instead, they must pursue collections or legal action to recover the debt. This differs from a secured loan, where the lender can take possession of the collateral if you fail to repay.

What Is an Unsecured Loan?

As stated above, an unsecured loan is the opposite of a secured loan. This means that you will not be putting up an asset as collateral for your loan. Instead, the lender relies on your word that you will repay the loan. This often means that there will be a few more checks to determine whether you have the ability to pay your loan back.

For example, you may need to provide proof of income, and your credit history may be reviewed. The credit check is more to determine how much the lender can lend to you rather than being a deliberate bar to obtaining an unsecured loan.

However, the main pro of an unsecured loan is that you don't actually need an asset to give up as collateral.

The Pros of an Unsecured Loan

The major pro of an unsecured loan is that you do not need to have any assets if you want to get your hands on one. Most secured loans will require you to own a vehicle. This means that if you do not own a vehicle, an unsecured loan may be your only option.

It is fast to borrow cash with an unsecured loan too. Depending on the lender and your personal circumstances, the entire borrowing process can be wrapped up in as little as 30 minutes.

The Cons of an Unsecured Loan

In some cases, getting hold of an unsecured loan can be trickier if you do not have a great credit history. It isn't impossible. It is just a bit more difficult.

Finally, an unsecured loan may not necessarily be brilliant for borrowing larger sums of cash. This is because the more a lender loans out, the greater the risk they will have to be dealing with.

Who Is an Unsecured Loan Best for?

An unsecured loan is best for those who want to borrow smaller sums of cash. Although, depending on your state, you may find that you can get an unsecured loan for up to several thousand dollars.

The borrowing process for an unsecured loan tends to be a little bit quicker, too. This is because there will be no vehicles to inspect. The bulk of the process can be completed online or by phone. It really is quite speedy. This means that people can get their hands on the cash they need for emergencies, often on the same day.

An unsecured loan will also work best for those that do not have any assets to offer as collateral.

Unsecured loans are also a good option for those that are employed with a stable income. When you take out an unsecured loan, you need to show that you have the ability to pay the loan back.

Yes, some lenders will accept non-employed sources of income (e.g., unemployment and disability benefits). However, they will prefer that you have a source of a consistent paycheck. It shows that you have more chances to repay the loan.

Finally, these loans are ideal for those with a recent credit history. Personal loan lenders like Simple Fast Loans will work with any credit history or score, but a credit check will be necessary. 

What Is a Secured Loan?

With a secured loan, you will use an asset as collateral for a loan. When you take out a secured loan, your loan amount will depend on your asset's value. For example, with a title loan, the value of your vehicle will determine how much you can borrow.

Other factors may also be taken into consideration here. For example, if another name is on the title (e.g., if you received the vehicle through financing that has yet to be paid off), the amount you can borrow may be slightly less, if you can secure a loan at all.

The Pros of a Secured Loan

A secured loan is that it does not always require a credit check. This means that if you do have an asset, it will be one of the better routes to go down.

Moreover, with a valuable asset that is validated by the lender, you may also be able to borrow a higher amount compared to an unsecured loan. The loan will often be handed out over the long term. This means that you have more time available in which to pay it back.

You also stand a much better chance of being approved if you do not have the greatest credit history in the world. This is because the main concern is that you have the ability to pay the loan back.

The Cons of a Secured Loan

A secured loan can sometimes take a little more time to apply for. However, the lender must check whether you legally own the asset you are putting up as collateral and double-check how much the asset is worth.

Finally, with a secured loan, you may be able to borrow less than if you went down the route of an unsecured loan. This is because the maximum the lender will ever be able to lend you when it comes to a secured loan will be the value of your asset.

Who Is a Secured Loan Best for?

A secured loan is the best option for those with an asset. For example, a title loan will be the title of your vehicle. The more your vehicle is worth, the more you will likely borrow. In many cases, you may be able to borrow a lot more cash with a secured loan than if you went down the unsecured route. 

Because the credit checks for a secured loan are much less strenuous, you also stand a much bigger chance of being able to borrow cash if you do not have a great credit score. 

Of course, a secured loan will also be ideal for those who want a slightly cheaper way to borrow cash. If the repayment terms of an unsecured loan are a little bit too high, then some people find that putting an asset up as collateral will result in the repayments being reduced.

Both secured and unsecured loans are viable options for those who wish to borrow cash. Your choice of loan will be dependent on your personal circumstances. Generally speaking, if you want to borrow more cash, then you would opt for a secured loan. If you want a loan to be paid off within a week or month, then an unsecured loan is perfectly fine.

If you have any questions about any of the online loan products offered at Simple Fast Loans, call the company to speak to a helpful representative.

Note: The content provided in this article is for informational purposes only. Contact your financial advisor regarding your specific financial situation.