Secured vs. Unsecured Loans

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There are many differences that separate secured and unsecured loans. Here are some of the differences you should consider when applying for a loan.

Understanding Secured & Unsecured Loans

Secured loans involve an asset that backs the loan. For example, a house backs a mortgage and a car backs an auto loan. Agreeing to a loan means that you are agreeing to the bank taking back that asset if you don’t pay. It acts as a security for the bank in case someone doesn’t pay. An unsecured loan means that the bank cannot have access to any assets. The unsecured loans are usually given out if the person needing the loan has a strong credit history.

Interest Rates

Interest rates are different between these two loans. Unsecured loans typically have higher interest rates because there is nothing else backing it, which makes it risky for the financial institution. The bank doesn’t have collateral to repossess a car or a home if a loan is not repaid. A secured loan has a lower interest rate because there is collateral for the bank to repossess something.

Term Length

The term, or length of the loan, is shorter with unsecured loans. This is because it lessens the risk on the financial lender. The banks want the money back as soon as possible, and that’s why the amount given is usually smaller than a secured loan.


Finally, not everyone will qualify for an unsecured loan. Banks want to lend to people who have excellent credit and have a good relationship with the financial institution. This ensures that the borrower can be trusted to pay back the money. Someone with good credit can qualify for a secured loan, but a relationship with the bank is not necessary.

if you are looking for an unsecured loan, consider Wise Loan!

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