Secured vs. Unsecured Loan
Two common types of loans are secured loans and unsecured loans. The difference between secured and unsecured loans lies in collateral. Secured loans require collateral such as financial assets, a home or a vehicle. Unsecured loans don’t require collateral. As a result, unsecured loans are riskier for the lender and may come with higher interest rates. Read on to learn more about how secured and unsecured loans work and the differences between them to decide which type of loan is right for you.
Use this comparison chart to understand secured vs. unsecured loans and which types of loans are in each category:
|Secured Loans||Unsecured Loans|
|Car title loan||Payday loan|
|Mortgage loan||Installment loan|
|Home equity line of credit||Student loan|
|Personal line of credit|
What Is a Secured Loan?
Secured loans are loans that are backed by collateral, such as a house, car, or piece of jewelry. Common types of secured loans are mortgage loans and car title loans. With a secured loan, the lender holds an interest the title or deed until the loan is fully repaid. If the borrower cannot repay the secured loan, the lender can take possession of the collateral and sell it to pay off the loan.
Examples of Secured Loans
Here are a few examples of secured loans, or loans that require you to use an asset as collateral:
- Title loan: A title loan is a secured loan that allows you to use your vehicle as collateral. Advance America offers title loans that you can pay off while continuing to drive your car.
- Secured line of credit: This secured loan is a lump sum of money that you can withdraw from whenever you need to cover an expense. A secured line of credit can be guaranteed by collateral such as a house or car.
- Mortgage: Your mortgage is a secured loan to pay for your home, using your home as collateral. Over a set amount of time, you will pay off this loan plus interest, taxes, and insurance.
Pros and Cons of Secured Loans
Secured loans may come with higher borrowing limits, lower interest rates, and longer repayment terms than unsecured loans. Still, secured loans may come with greater risk because if the loan isn’t repaid on time, you can lose your collateral.
When You Should Consider a Secured Loan
You might consider a secured loan if you need to borrow a large amount of money over a long period of time. You might also consider a secured loan if you have assets, such as a car or house, that you can offer as collateral.
What Is an Unsecured Loan?
Unsecured loans are loans that are not backed by collateral. Common types of unsecured loans are payday loans, installment loans, and personal lines of credit. If the borrower cannot repay the unsecured loan, the lender can’t take the borrower’s assets, but they can transfer the account to collections to help set up payment arrangements. In extreme cases, the lender can choose to take legal action.
Examples of Unsecured Loans
Here are a few examples of unsecured loans, or loans that do not require an asset as collateral:
- Payday loan: A payday loan is a short-term unsecured loan that you can pay off when you get your next paycheck. Advance America offers fast payday loans and you don’t need good credit to qualify.
- Credit card: A credit card is an unsecured loan that allows you to carry a balance and pay it off over time with interest. Typically, you have to pay your credit card bill once a month, whether you pay off your balance in full or make a minimum payment.
- Personal line of credit: With a personal line of credit, you can have access to money whenever you need it. Advance America can give you instant access to a line of credit that you can pay back over time or all at once.
Pros and Cons of Unsecured Loans
Unsecured loans may be less risky for the borrower. More risk for the lender, however, can result in lower borrowing limits, higher interest rates, and higher credit scores needed to apply.
When You Should Consider an Unsecured Loan
You might consider an unsecured loan if you need to borrow a smaller amount of money quickly. You might also consider an unsecured loan if you don’t have a car or house to offer as collateral.
Differences Between Secured and Unsecured Loans
Here are some of the main differences between secured and unsecured personal loans:
Lenders offering secured loans require you to provide an asset as collateral, like your house or car, to secure the loan. With an unsecured loan, you don’t need to put up property that you own as collateral.
Unsecured loans typically come with higher interest rates than secured loans. This is because unsecured loans aren’t protected by collateral, so lenders often view these loans as riskier.
Since secured loans involve using an asset as collateral, these loans can offer higher borrowing limits than unsecured loans, giving you the potential to receive more money.
Can I qualify for a secured loan or unsecured loan?
Since secured loans are secured by collateral, they are less risky to the lender and can sometimes be easier to qualify for than unsecured loans. But luckily, there are plenty of secured or unsecured loans for borrowers with any credit score. Many lenders will consider factors in addition to your credit, like income, employment history, and current debts. This means you can still qualify for both secured and unsecured loans with poor or fair credit.
Should I Get a Secured or Unsecured Loan?
The right loan for you depends on your financial situation and what loan would best fit your needs. Consider the features that each type of secured and unsecured loan offers and how much money would help your financial situation. If you need some extra cash to pay for your expenses while you wait for your next paycheck, for instance, then a payday loan may be your best option. Or, if you would like to have a sum of money that you can draw from whenever you need it, you may benefit from a line of credit. And if you want a larger amount of funds and are willing to use your car as collateral, a title loan may be right for you.
Advance America secured and unsecured loans
Advance America provides both secured and unsecured loans. Here are our loan products:
Advance America Secured Loans
Advance America offers the following secured loan:
Car Title Loan
Car title loans provide quick access to cash based on the value of your vehicle and ability to repay. No bank account or great credit score is required to apply.
Advance America Unsecured Loans
Advance America offers the following unsecured loans:
Payday loans help you put a little extra money in your pocket before your next paycheck arrives. Payday loans are short-term, small-dollar unsecured loans that are usually paid back within a month.
Installment loans are unsecured personal loans that can be paid back in small amounts over time, often between 3 and 24 months. Payments can be automatically withdrawn from your bank account or delivered in cash at an Advance America location.
Lines of Credit
Personal lines of credit provide quick and convenient access to money in case of an emergency. Once you’re approved for a line of credit and certain credit limit, the line stays open for you to withdraw from as needed. You only pay interest on the money you withdraw, and you can pay it back all at once or over time.
How to apply for secured or unsecured loans
Here’s how you can apply for a secured or unsecured loan:
1. Compare lenders
Shop around online and find multiple lenders offering secured or unsecured loans. Make sure you choose a reputable lender with a high Better Business Bureau Rating and positive online reviews. Doing some research can ensure that you find a safe and legitimate lender and avoid scammers.
2. Choose a loan option
Once you’ve found the right lender, it’s time to choose a loan. Compare each loan’s interest rates, terms, and fees. This can help you narrow down your options and find a loan that works for your budget and needs.
3. Gather all necessary documents
Before filling out an application for a secured or unsecured loan, make sure you have all documents and information needed to apply. These may include your government issued ID, Social Security Number, and bank account number.
4. Fill out and submit an application
Fill out an application for the secured or unsecured loan of your choice, providing all necessary personal and financial details. Double check your application before submitting to make sure all information is accurate. Then, submit your application and wait for approval. If you applied for a secured loan, the lender may conduct an appraisal of the item you’re providing as collateral to determine its value.
5. Receive your funds
If approved for a secured or unsecured loan, you can receive the funds you need to cover expenses. Some lenders have quick approval and funding processes, and may deposit the funds into your bank account the same day you apply or within 24 hours.
Get a secured or unsecured loan from Advance America
Advance America secured and unsecured loans can get you the funds you need quickly so you can cover expenses. You can fill out an application online or in store, and don’t need good credit to get approved. Visit Advance America to learn more about the loans we offer and get started on an application today.