What's a Secured Personal Loan?
In simple terms, a secured personal loan is a loan where the borrower needs to provide a collateral to the lender. The lender has the legal right to seize the asset that is put down as collateral by the borrower in case they fail to repay the loan. This collateral can be borrower's house, car or any other valuables such as a certificate of deposit among other things.
Benefits of Secured Personal Loans
1. Lower APR: Since a secured loan is safer for lenders, they typically offer these loans at a much lower interest rate as compared to unsecured personal loans.
2. Longer Repayment Terms: Lenders typically offer much longer repayment terms for secured personal loans as compared to unsecured loans due to the enhanced security.
3. Credit History Does Not Matter Much: Since lenders have a collateral in place which they can sell in case they fail to recover the loan, they do not pay too much attention to the credit history of the borrower.
Disadvantages of Unsecured Personal Loans
1. Higher Interest Rates: You are likely to pay much higher interest rate when you get an unsecured loan as compared to a secured loan.
2. Credit Score Matters: In most cases, lenders require applicants to have good credit score though there are lenders that offer unsecured loans to those with poor credit history.
Overall, a secured personal loan has a number of advantages over unsecured personal loan. Therefore, you should prefer getting a secured loan over an unsecured loan.
