Secured or Unsecured Loans: Borrowers' Prerogative

Yara Zakharia, Esq.

Today, an unprecedented number of Americans are finding financial relief through personal borrowing, via secured loans or unsecured loans. Surveys confirm that the majority of consumers in the U.S. resort to some type of loan to iron out the state of their finances and cover a garden variety of expenditures ranging from college tuition fees, hospital visits to honeymoons and home or auto purchases. The increased ease in accessibility to secured and unsecured loans, as well as their transformative impact on cash-strapped borrowers by enabling them to realize their financial goals, have contributed to loans' rise in popularity. There are two types of loans available to consumers in the marketplace: 1) secured loans and 2) unsecured loans.

Secured loans:

To obtain a secured loan, a borrower must pledge collateral or an asset of some sort which serves to secure the debt and protect the lender in the event that the former defaults. The collateral may be the item purchased, such as expensive jewelry, an automobile or real estate. Loan security may also take the form of personal property, stocks, or bonds. The title or deed is transferred to the bank or finance company until the borrower repays the loan amount, including interest and other fees. Consumers with a tarnished credit score, arrears, a poor credit history, or bankruptcy are usually best accommodated by secured bad credit loans, which are available at reasonable rates. With a secured bad credit loan, homeowners' poor credit scores are disregarded, since these borrowers are offering their home as security for lenders.

Some of the most commonly-used secured loans are 1) the mortgage loan, in which a home is pledged as collateral; 2) the home equity loan which is based on a borrower's amount of equity in his or her home; 3) the home equity line of credit which may be utilized for any purpose; 4) a second mortgage, which is an optimal method of obtaining needed funds; and 5) the debt consolidation loan, which saves consumers money and offers the convenience of one payment per month as well as lower monthly payments. Some of the numerous benefits associated with secured loans include the following:

  • Opportunity to obtain a larger sum of money quickly
  • A lower rate of interest
  • A longer repayment term

Borrowers should, however, keep in mind the eventuality of losing their home if timely loan payments are not made.

Unsecured loans:

These do not require that borrowers pledge any surety and thus are ideal for individuals either lacking in assets or reluctant to put up any as collateral. While a solid credit rating is oftentimes a pre-requisite to qualifying for this type of loan, numerous credit unions, banks, financial establishments and business merchants cater to consumers with battered credit by offering the unsecured loan with bad credit. Borrowers may utilize unsecured loans for any purpose, such as (1) paying off their student loans and credit card bills, (2) financing necessary purchases, weddings, or home improvements, (3) balancing the budget, (4) consolidating bills, (5) attending to emergencies, 6) having extra cash on hand or (7) spending on leisure activities (i.e. travel, hobbies). Since not backed by collateral, unsecured loans generally command slightly higher interest rates. Compared to secured loans, the maximum loan period is usually five years, which is a sufficiently lengthy to fulfill most borrower's needs.

A bad credit unsecured personal loan is specifically designed for individuals struggling with such issues as a bad credit history, county court judgments, default on payments, and past repossessions. Even applicants with the worst credit rating qualify for a bad credit unsecured loan. Moreover, this type of loan enables borrowers to improve their credit score, for instance by consolidating their debts and repaying the amount due.

Consumers may choose from a variety of bad credit loans, which include auto loans, payday loans, personal and mortgage loans, prepaid credit cards, and debt consolidation. A bad credit loan may be either secured or unsecured. The bad credit unsecured personal loan is a saving grace to non-homeowners. One way that the latter may avail themselves of a bad credit unsecured loan is by having a co-signer with a positive credit rating. Applications for the unsecured loan with bad credit may be completed online in a matter of minutes. Finally, there are many bad credit lenders who charge reasonable interest rates.