If you’re looking to get money for an important purchase, it may feel like the available options are overwhelming. How can you know which is best? What’s the difference between a secured loan and an unsecured loan? Learn how secured loans are unique and why they may be the smart pick for those living in Ohio who want an easy loan process with access to cheaper funds in larger amounts.
What is a secured loan?
If you’ve heard the term “secured loan,” you may have questions about how they work. A secured personal loan uses an item of value, usually the item purchased with the loan, as collateral. A secured loan for a car, for example, uses the car itself as a guarantee that you’ll repay the loan. If the loan isn’t paid, the lender may take the car and try to use its value as a way to offset any losses.
Other types of secured loans are mortgages and financing for expensive consumer electronics. They all work in the same way and use the item you buy as the “security” for the repayment. Some secured loans offer cash for whatever you want, however. A car title loan is a type of loan that uses your car title as collateral, but you can use the money from the loan for your individual needs.
5 benefits of secured loans in Ohio
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 cash without asking that you put up any collateral, you may see the following:
- 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.
- 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.
- You may have access to larger loan limits with secured personal loans because the lender has some 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.
- The length of the loan can be longer. If you want smaller 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.
- 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 lender can often use the collateral alone in deciding if you qualify and may not need to run extensive credit checks, get reports from your employer, or ask for piles of documentation.
When applying for a secured loan, the lender is more comfortable taking a risk on you because you have something of value invested. By showing the lender that you are willing to use collateral, you increase your chances of approval and get more favorable loan terms as a result.
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.
Final secured personal loan tips
As with any loan, it’s important to look at what you’ll use the money for and only borrow what you need. Taking out a loan is a significant money move and one that can help you repay more expensive debt, pay for a much-needed home repair, or even help with unexpected medical bills.
As one of the most popular secured loans, car title loans may be an easy way to get money because many people own their cars and have access to the titles at home. By demonstrating that you have ownership of the vehicle without any liens, it qualifies the car for use as collateral, which is the foundation of a secured loan.