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Secured vs Unsecured Loans: Which is Better?

Securing your loans with your home, business equipment, machinery and other costly assets can provide you with a cheaper interest rate than an unsecured loan. But, this discussion on secured vs unsecured loan can show you that there’s more to it than the rates.

Secured loan is cheaper than an unsecured one…

Applying for a loan and using your home as collateral has its own benefits…

  • Big borrowing. You can borrow a large amount which depends on the security and the type of loan offered. Car loans, mortgage, equipment finance and other types of secured loans has high borrowing limit because of the lesser risk it poses to the lender compared to unsecured loans.
  • Easy to obtain. Lenders are more willing to lend to those with poor credit scores as long as they have a security that they can go after when the borrower fails to repay the loan.
  • You can enjoy the affordability of monthly repayments. Instead of paying the loan in full, you can pay a portion of the principal and the interest every time you make your monthly payment.
  • Longer loan period. Lenders usually prefer long-term loans to offset the set up costs of the loan. So, if you will get a 20-year loan, the lender will increase the total interest of the loan. But, the monthly repayment will be slightly reduced.

Don’t just look at the sunny side of getting a secured loan. Consider the fact that loan firms and financing institutions are making money out of your need. While you can use the money to address your immediate needs, a loan is a loan and you have to pay for it eventually. That’s why many borrowers get into a bad credit situation because they just let things slide.

It’s true that repaying the loan is not something that you should excitedly look forward to. You will have to set aside your future income to make payment on your loan each month. That’s how a loan works.

Here’s why you should always compare different loan institutions prior to obtaining a loan…

Don’t just dive in anyway without checking whether another company offers a better interest rate and fees or not. Don’t rely on what was written on display or what your loan calculator tells you. Talk to your loan officers and ask things that could affect the total cost of the loan, such as span of the loan, miscellaneous fees, and the interest rates.


It is advisable for borrowers like you to make no-credit check enquiries instead of filing multiple loan applications. So, before you use a comparison site, ask the website administrator first if the enquiry will eventually show up on your credit report. Because if it does, a lender will see the number of inquiries you made and they may interpret it as your desperate attempt to get a loan despite being rejected by several lenders.

Ask the lender if the online enquiry for a quote will also lead to a full credit check on you because if it is, the report will show that you actually applied to borrow the secured or the unsecured loan. So, next time you compare loan rates, always check if it is a no credit check quotation search or a full-on application.

Practical unsecured loan options for people who don’t want to put their assets at risk in case of default…

Here’s the downside of a secured loan…if you fail to repay the amount you owe, the lender will go after the security.

Credit card shuffle and transfers

Do you want to cut the interest rate on your existing balance? Ask your credit card company if they allow existing customers like you to move your other debts to them at a lower rate. This is a practical strategy to shift your balance to a low-interest credit account so you can pay the most expensive debts first and save money on the interests.

I have several unsecured and secured loans. When is it time to consolidate my loan?

Don’t wait until you find yourself consistently struggling with debts and keeping up with your repayment schedules before consolidating a loan. The sooner you address the problem, the faster it will be gone and over with.

Debt consolidation helps you lower monthly payments, clear old debts and simplify payment. You only have to pay one creditor each month, and you may even enjoy a tax break if you use home equity loan as a means of consolidating your debt and to pay what you owe.

Final thoughts

To answer the questions, “Secured vs unsecured loans: Which is better?” the answer is, it depends. There is always an appropriate solution for every need. But one thing is certain, debt consolidation, whether it is secured or unsecured, can help you out of debt and help you start with a cleaner credit file and a more relaxed mind.

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