How to Choose Between a Secured and Unsecured Loan
If you have a poor credit score and need funds to meet unavoidable expenses, bad credit loans are the best solution. Choosing a lender offering funds to bad credit borrowers is not too difficult, given the large number of such lenders operating in the country.
Also, to help you make an informed decision, there are many Internet comparison tools that make it easy find the lowest rates available. However, if you are a bad credit borrower who owns a valuable asset, there is an important point to consider. You should first decide if you want to opt for secured or unsecured loan. There are advantages and disadvantages to both.
Secured bad credit loans
When you put up your valuable asset as collateral for your bad credit loan, it becomes a secured loan. The loan is based on the value of your asset. If you are unable to repay the loan for any reason, then your lender can lay claim to the asset.
If the asset is highly valuable, such as your home, then you can take a larger loan by putting it up as collateral. An unsecured loan may not give you access to such large funds. When you need to meet big expenses that cannot be postponed, then availing of a secured loan with your house property as collateral is a good solution.
A secured loan is much easier to get than an unsecured one. The lender’s risk is lowered substantially owing to the presence of the valuable collateral. In the event of default, he can sell the security to make good his loan. This makes such loans much less risky than unsecured ones.
Because of this lower risk, the lender may also offer secured loans at lower interest rates than he charges for unsecured loans. Although bad credit loans are typically taken for very short terms, a low interest rate does offer good savings. For bad credit borrowers who are in financial trouble, every penny saved is a bonus.
The main disadvantage of secured loans is that this loan creates a lien on your asset. You may lose your asset if you are unable to fulfill your repayment obligations. That is why that it is best to avoid using these loans for frivolous expenses and only risk your asset if the expense is unavoidable and critical.
Unsecured bad credit loans
For those borrowers who do not possess a valuable asset that they can use as security or those who do not wish to create a risk on their asset, unsecured bad credit loans are the ideal options. These loans give you access to funds quickly when you have an expense to meet. If you have a paying job and expect to receive your pay check within the following 31 days, you can shop for instant approval loans from the many online lenders in the market.
The greatest advantage of this loan is that there is no risk created on your assets. However, the lack of collateral also means that the total loan amount you can obtain may be limited as compared to secured bad credit loans. The lender also protects against the high risk in this loan by charging a higher rate of interest than on secured loans.
Unsecured bad credit loans are still ideal when you have a very short-term need for funds. The accumulated interest on such loans may still be much lower than what you will accrue on balances of easy payment options such as credit cards.