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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: gpointstudio/Shutterstock October 11, 2022 Jerry Brown is a contributing writer for Bankrate. Jerry writes about home equity, personal loans, auto loans and debt management. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. When shopping for personal loans, borrowers will find that there are two main types of loans — secured personal loans and unsecured personal loans. A secured personal loan is backed by collateral, meaning something you own can be taken by the bank if you do not pay the loan under the agreed terms. An unsecured personal loan does not require any form of collateral for you to qualify. Both types of personal loans have their pros and cons. With the growth of , unsecured personal loan usage is growing because borrowers have access to more options for lending. With so many lending options available, deciding the best option for you can be tricky. Gathering the facts about secured and unsecured personal loans is a great first step in obtaining . Get pre-qualified
Secured loans
Secured loans are often used for purchases that need larger loan amounts — like a home loan or an auto loan. Lenders like secured loans because they are taking less risk. Borrowers like secured loans because you can typically get lower interest rates. You can get rates to start as low as three percent APR with good credit. Common types of secured loans
Here are a few examples: : Mortgages require the house being purchased to be used as collateral. If the borrower is unable to repay the loan, the house can go into foreclosure and the borrower can lose the house. : For those with limited credit history, a secured credit card can offer the chance to build your credit score. The credit card requires a cash deposit to serve as collateral, typically between . The amount you deposit will be your credit limit. If a monthly payment is not made, the money is taken from the cash held as collateral. : These types of loans are available for cars, trucks, motorcycles and boats. The vehicle is used as collateral. Not repaying the loan can result in the vehicle being repossessed by the lender as repayment. Where to get a secured loan
Several financial institutions offer secured loans, such as banks, credit unions and online lenders. Pros
Less stringent eligibility requirements Often has lower interest rates than unsecured loans Secured loans usually have higher borrowing limits than unsecured loans Cons
Collateral can be taken if you default on the loan Failure to repay the loan as agree can damage your credit Unsecured loans
Unsecured loans don’t require collateral, but failing to pay on time can result in a bad credit score. Your debt can also be if you don’t pay off your loan within the terms of the lender. Common types of unsecured loans
Here are a few examples of unsecured loans: : These are often called “term loans” or “,” because they have a fixed period of time for repayment with monthly payments made in equal amounts. Revolving loans: These are loans that the borrower can use and repay repeatedly. Credit cards and personal lines of credit are examples of this type. : Loans for college are usually made out to students with few assets and little credit history, so they don’t require collateral. Where to get an unsecured loan
You can get an unsecured loan from a bank, credit union or online lender. Pros
A lender can’t take your assets if you default on the loan, at least without a court’s permission No collateral required Unsecured loans usually have lower borrowing limits than secured loans Cons
Often has higher rates than secured loans May have a tough time qualifying with bad credit Defaulting on the loan can cause serious credit damage What are the key differences between secured and unsecured loans
The choice between an unsecured and secured loan impacts your approval chances, your rates and fees and the need for collateral. Collateral
The primary difference between secured and unsecured loans comes down to collateral. With a secured loan, you give the lender the right to seize the asset you use as collateral should you fail to repay the loan. With an unsecured loan, no assets are required — though you’ll still face credit implications if you default on your loan payments. Interest rates
Lenders take on less risk with secured loans since the borrower has more incentive to repay the loan. Because of this, interest rates are typically much lower. However, with a good credit score you will get more favorable rates for either type of loan. A good credit score is typically considered anything 670 or higher. Borrowing limits
Due to the financial approval requirements, secured loans tend to have higher borrowing limits, giving you access to more money. How you can use the money
Most unsecured loans have few restrictions on how the money will be used. As long as the loan proceeds aren’t going toward gambling, buying securities, illegal activities or, in some cases, college expenses, you’re free to spend the money as you please. Lenders tend to approve secured personal loans for specific purposes, like or a recreational vehicle. With these types of loans, your options may be more limited. Requirements to qualify
If you have bad credit, some lenders may be unwilling to lend you an unsecured loan since they perceive bad-credit borrowers as riskier. With secured loans, on the other hand, credit requirements may be lower since the borrower takes on additional risk. Which is better for you
Which loan type is better depends on your need, financial history and credit score. Since secured loans will often have lower interest rates and higher borrowing limits, they may be the best option if you’re confident about being able to make timely payments. Secured loans are also usually the best choice if you have bad credit. That said, an unsecured loan may be the best choice if you don’t want to place your assets at risk. Interest rates may be slightly higher, but they could still be competitive if you have good credit. The bottom line
Both secured and unsecured personal loans have distinctive benefits and drawbacks. Secured personal loans often come with lower interest rates, but your collateral can be seized if you default. With an unsecured personal loan, a lender can’t take your collateral without a court’s permission. But you may have to pay a higher interest rate. Whether you decide to take out a secured or unsecured personal loan, make sure to and compare their rates and fees to ensure that you’re getting the best rates for your financial need. SHARE: Jerry Brown is a contributing writer for Bankrate. Jerry writes about home equity, personal loans, auto loans and debt management. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Related Articles