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What are Secured and Unsecured Loans?

A secured loan is a loan where the borrower has put up collateral as a guarantee of repayment.  In other words, In return for borrowing money, the borrower must promise to give the lender something of value if they fail to pay them back, generally of at least equal in value to the loaned amount of money.

On the other hand, unsecured loans do not involve having an asset to back the loan. It can be difficult to get an unsecured loan.  Lenders might look at your credit score to determine if you are risk-free and eligible. Other factors such as credit history, capacity, capital and personal financial background may also be taken into consideration. All these are used to determine the creditworthiness of a borrower before giving them a loan.

Secured and unsecured loans are totally different.  Knowing which type of loan to borrow might save you from hardship while getting through a tough situation.

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Here are some examples of unsecured loans to help you out of tough situations:

Payday Loans

Many people turn to payday loans in times of need or when they require an extra boost to get through the month. Payday loans have an average amount of $350 and have short term periods of about 1-2 weeks.

Payday loans depend on specific income for their repayment such as pending tax refunds towards your next paycheck. While the amounts are not as high for this type of loan when compared to other financing, they can be made available immediately. Once you get a payday loan you will be asked to write the check for the amount you are borrowing and the additional fees charged on the loan. Your loan may be rolled over for several more weeks if you don’t have to enough money.

Installment Loans

As a last resort, taking out an unsecured loan can be beneficial when consolidating debts or seeking other avenues to organize finances. Another option would be to consider a credit card as a loan. They are perhaps the most common example of an unsecured loans. Balances can be paid in monthly installments with this type of funding. This is also very risky financially because you are exhausting your ability to get this cash if you pull on your credit cards early. The little you can get simply will not be there and your bills would just go up. Smart borrowers typically pause and use this as the very last resort.

Bad Credit Loans

Bad credit loans are unsecured loans because they are not secured by assets or collateral. They are designed for individuals who may not have the best credit but are seeking financial assistance. The repayment period can stretch over several months with this type of funding. However, having a poor credit score can make it hard to get an unsecured loan. It makes a bad situation worse when you can’t get the help you need.

How is a Secured Loan different from a credit card?

Like credit cards, secured loans require a regular payment, normally monthly, from the borrower. There are a few major differences however:

  • Interest Rate
  • Available Credit

Interest Rate: Credit card interest rates can change for a number of reasons: missed payment, change in credit score, or possessing a variable interest rate. In contrast, the interest rate of a secured loan is often fixed for the life of the loan

Available Credit:  When you borrow in the form of a secured loan, you receive a fixed amount of money. Unlike a credit card, which is a line of credit, if you want more money you have to fill out an additional loan application.

What are the different types of Secured Loans?

There are two common secured loans:

  • Mortgage
  • Auto Loan

Mortgages: These loans are normally secured against the home you are purchasing. They have a lengthy repayment schedule, 15 to 30 years normally, and have a longer application process.

 Vehicle Loans: Normally, these loans are used to purchase a car. The lender pays the full price of the vehicle, then the borrower pays them back in installments over the life of the loan.

Other Secured Loans: You can also get a secured loan using something like a savings account or investment portfolio. You won’t have access to the accounts for the life of the loan. And in the case of an investment portfolio, if the value drops too much the lender might demand an earlier repayment schedule.

How much money can I get for a Secured Loan?

That depends on the loan type. The value of a mortgage loan for example, is for enough money to purchase a house. Similarly, a vehicle loan will be for the value of the car you are purchasing. This is in contrast to something like an unsecured, short-term loan, which may be for only a few hundred dollars. If you are using something to secure the loan, you can generally borrow more money, at a better rate, for a longer period of time. Unfortunately the item you are buying with the loan money is often used for collateral for the loan, a house for example. There are one or two exceptions to this, like an auto title loan.

5 benefits of secured loans

Why use a secured loan? Are they risky? While it’s true that putting an item of value up for collateral does have risks, the rewards are significant. Unlike an unsecured loan, which gives you money without asking that you put up any collateral, you may see the following:

  1. You don’t always need good or excellent credit to qualify. Secured loans are often given to those with bad or no credit—even when they can’t get financing anywhere else.
  2. Secured loans usually have lower interest rates, meaning you’ll pay less over the life of the loan. These are preferred over high-interest rate credit card advances or expensive personal loans, which can cost you more in interest than you’ll ever get in principle.
  3. You may have access to larger loan limits with secured personal loans because of the assurance that you’ll make repayments on time. They are a good choice for someone who needs fast cash in amounts greater than a few hundred dollars.
  4. The length of the loan can be longer. If you want smaller monthly payments and more time to pay, a secured loan may be your better option. Many people need access to cash but don’t have much wiggle room in their budgets. A secured loan could be something you can afford to add to your monthly expenses quite easily.
  5. Approval can be immediate. Unlike unsecured loans, which can take days or even weeks to process, many secured loans can be approved the same day. The use of collateral alone can be used in deciding if you qualify and may not require extensive credit checks, employer reports, or piles of documentation.

When applying for a secured loan, the risk is low. By showing that you are willing to use collateral, you increase your chances of approval and get more favorable loan terms as a result.1

For someone who is new to credit usage or has made mistakes in the past, a secured loan can be your first step back on track through responsible credit behavior. It’s often a way for people who have been out of the credit game to get back in it with loan amounts large enough to really make a difference.

What happens if I can’t pay back my Secured Loan?

If you miss a payment by 30 days, your lender may report it to the three major credit bureaus, Equifax, Experian, and TransUnion. This may damage your credit score, which can impact your ability to secure financing in the future, for a car, a house, student loans, etc. It may be reported again if you continue to miss payments, after it’s another 30 days past due, then 60 days, etc. This is how a single loan can wreak havoc on your credit history. The lender may even take the borrower to court to try and recover their money. In the ensuring expensive legal battle, the borrower can be out a lot of money if they lose, have to pay their own court costs, as well as the court costs of the lender. If they are unable to pay, they may be forced into bankruptcy.

Once you default, the lender can begin the process of repossessing your collateral. Once they have it, they can sell it to recoup some of the money they lost on the loan. Depending on the state, you may or may not be entitled to any proceeds that go beyond the amount you owe the lender.

Secured Auto Title Loan

An auto title loan is a type of secured loan where you use your car title as collateral. Like other secured loans, you pay the interest and a portion of the principle each month over the life of the loan. Like mortgages or vehicle loans, your loan is secured with collateral, meaning you may be able to get a better interest rate than with an unsecured loan. Because title loan lenders are more concerned with your ability to pay and the value of your car, there’s no lengthy loan application process and they aren’t concerned with your credit score.

There are only a few things you need to get an auto title loan1:

  • Clear-and-Free title for the vehicle in your name
  • Proof of Income
  • Government-Issued I.D. (Driver’s License, State I.D., Passport, etc.)
  • Proof of Residence (Certain pieces of mail)
  • Photos of the front, back, and sides of vehicle

How to get a Secured Title Loan

As you can see, if you need funds for an emergency expense and can’t wait for a lengthy application process, an auto title loan might be right for you.

With our easy process, we give you three ways to contact us that makes it convenient for you:

  1. Visit a participating location
  2. Call us at 1-855-422-7412
  3. Sign up online without leaving your home

Once you’ve decided how you want to get in touch, just follow these steps to get the money you need1:

  1. Fill out the registration form.
  2. Submit your important documents to your representative.
  3. Sign your agreement.
  4. Collect your funds1!