Secured and Unsecured Loans

Here is a little piece of information about alternatives to payday loans for those people who consider this type of financial help. Among regular types of loans there are secured and unsecured ones and this is the brief review of both.

Secured Loans

Under the term of a secured loan is understood the loan that is given against a person’s assets that are usually represented by some kind of a property such as a car or a house, or some other valuable possession.

The idea behind such lending is that in case of a borrower’s insolvency, the asset is taken away. According to the agreement a creditor gets some rights for a person’s property that can be executed in case of non-repayment. Secured loans are called so because an asset, or collateral, serves as some kind of guarantee that the loan will be repaid.

Types of secured loans are:

Car loans: A car loan is a type of secured loan in which the borrower borrows money against the value of their car. The car can be used as collateral for the loan, meaning that if the borrower fails to repay the debt, the creditor can take possession of the car.

Example of rates: A car loan for $10,000 over 4 years will have an APR of 10.9%


Home loans: A home loan is a type of secured loan in which the borrower borrows money against the value of their home. The home can be used as collateral for the loan, meaning that if the borrower fails to repay the debt, the creditor can take possession of the home.

Example of rates: A home loan for $100,000 over 25 years will have an APR of 4.5%


Property loans: A property loan is a type of secured loan in which the borrower borrows money against the value of a property that they own. The property can be used as collateral for the loan, meaning that if the borrower fails to repay the debt, the creditor can take possession of the property.

Example of rates: A property loan for $200,000 over 25 years will have an APR of 6.4%


Business loans: A business loan is a type of secured loan in which the borrower borrows money against the value of their business. The business can be used as collateral for the loan, meaning that if the borrower fails to repay the debt, the creditor can take possession of the business.

Example of rates: A business loan for $10,000 over 3 years will have an APR of 35.4%


Secured loans have both pros and cons and here are the advantages.

  • First of all such loans come with much lower interest rates than their unsecured counterparts. They are beneficial for people who are able to pledge something as collateral as less money will have to be rapid.
  • Secured loans are also offered in larger amounts and on more flexible terms as well. It is easier for a borrower to get approval for such loans in comparison to unsecured ones as the latter refer to a more risky group of landing and therefore more requirements should be met by customers.

However, secured loans have also got some hidden traps.

  • Taking out a loan is a very serious thing to do and it means that a person gets into a period when he or she is constantly in need of giving money away.
  • Secured loans are risky business as there is always a chance of failing the repayment and, as a result, losing the asset.
  • Besides, this option is open only to this limited group of people who actually have something to offer as collateral. Secured loans are not offered to people who have none.

Unsecured Loans

When it comes to unsecured loans, they have some distinctions. They are given on the basis of a person’s credit score and income and do not require any collaterals. There are personal, business and credit card loans as well as bank overdraft loans and debt settlement loans and so on.The best part of such loans that a person does not risk losing his or her possessions in any way as there is no need in a collateral at all.

Besides, customers looking for smaller loans and shorter repayment periods find this lending option pretty appealing. Unsecured loans are available for a great number of people and they are often are really of assistance for a person trying to achieve his or her goal.

However, there are drawbacks as well.

Smaller loan amount and shorter repayment period can be an advantage for some person as well as a disadvantage for another.

Besides, unsecured loans are always more expensive when it comes to interest rates. Requirements for this type of loans are also stricter and more attention is paid to credit report of a person.

Types of unsecured loans are:

Personal Loans: A personal loan is an unsecured loan that is offered to individuals for personal use. Personal loans can be used for a variety of reasons, such as to finance a wedding, consolidate debt, or make home improvements.

Example of rates: A personal loan for $10,000 over 3 years will have an APR of 35.4%


Business Loans: A business loan is an unsecured loan that is offered to businesses for a variety of reasons, such as to finance a new business venture, purchase equipment, or expand operations.

Example of rates: A business loan for $10,000 over 3 years will have an APR of 35.4%


Credit Cards: A credit card is a type of unsecured loan that allows consumers to borrow money up to a certain limit in order to purchase items or withdraw cash.

Example of rates: A credit card with a limit of $2,000 has an APR of 34.9%.


Bank Overdraft: A bank overdraft is an unsecured loan that allows consumers to borrow up to a certain limit in order to cover expenses when their checking account is running low.

Example of rates: A bank overdraft with a limit of $1,000 has an APR of 49.9%.


Debt Settlement Loan: A debt settlement loan is an unsecured loan that is offered to consumers who are struggling to repay their debts. The loan is used to pay off the consumer’s outstanding debts and then the consumer pays the debt settlement loan back over time.

Example of rates: A debt settlement loan for $5,000 with a 12-month term will have an APR of 49.9%.


Payday loan: A payday loan is a type of unsecured loan that is offered to consumers who need cash quickly. The loan is typically repaid on the consumer’s next payday.

Example of rates: A payday loan for $200 with a 14-day term will have an APR of 450%.


There are advantages and disadvantages to both secured and unsecured loans. Secured loans are riskier, but they offer a lower interest rate and are available to a wider range of people. Unsecured loans are less risky, but have a higher interest rate and are available to a narrower range of people. Ultimately, the type of loan that is best for a person depends on his or her individual needs and circumstances.

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