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Secured vs. Unsecured Loans - What's the Difference?

Unsecured loans are loans that do not require collateral in the event of a delinquent loan. These loans will charge you fees if you are late in payment and can take you to collections if the loan is not paid back within a negotiated time.

Debt Consolidation Loans

These loans combine most, or all of your debts. They are usually with unsecured credit cards and can have a single payment that is usually lower than the total of the payments you are making now.

The interest rate on debt consolidation loans may be higher than those on home equity loans but they are still lower than any credit card APR that exists.
You may want to consider this loan if you want to secure lower interest rates. You may want to secure a fixed rate on your debts. If you want a single easy payment then this type of loan may be for you.

Payday Loans

Payday loans are cash loans that are meant to be paid back on your next payday. The process is quite simple and easy, there is usually not a credit check and money is given within a few hours.

The interest rates may be a little higher but it isn't too high when the loan is paid back in the short time period that is arranged with the lender. These are short term loans only.

You may want to consider a payday loan if you can't get a traditional loan, you only need a small amount (no more than typically $1,500), and you have an urgent need for money that can be paid back shortly.

Secured Loans

With secured loans you have to put forth some asset i.e., your home, a car or other personal belongings, as collateral for the loan. If the loan cannot be paid back, your asset is taken and the deal is closed.
Doing this, the creditor is free from the financial risks involved in giving you the loan because you allow them to take your property in the event that the loan is not repaid. Because you have something to give in the event of default, you may find some great interest rates and repayment periods for these loans. You have more flexibility when you have collateral to give up.

Being able to exchange collateral also gives you a leg up when it comes to loan approval when you don't have the best credit history. This may be ideal for you if you haven't been able to receive a loan before because of your credit.

Car Title Loans

Car title loans are similar to payday loans being that they are meant to be short term. The amount you can borrow is usually more than a payday loan depending on the value of your car. The interest rates may be different too, so do your research to ensure the best deal.

You may want to consider a loan like this if you need cash fast and you need more than you can get with a payday loan. If you have been turned down by traditional lenders before as well, you may want to consider this type of loan.

Home Equity Loans

A home equity loan is typically a second mortgage. As such, it has a higher interest rate than a first mortgage, and a shorter time period to pay it back - up to 15 years.

You may want to consider this type of loan if you need money for renovations or improvements on your home. If you use the money for that it is usually tax deductible. This is something that you want to consider carefully and not to take a home equity loan out irresponsibly.

The collateral is your home if you cannot pay the loan back. This is a big risk, so make sure you know what you are getting into and have all the information from the lender you need.

These are just a few of the loans that exist today, but it gives you an idea of the difference in some of these loans. Regarding money, there is always risk so determine what your needs are and what loan or lender will work with you in attaining your goals regarding a loan.

Related to: Secured Loans , Unsecured Loans , Payday Advance Seed Newsvine

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