Did you know 60% of Americans don’t have even $1,000 in savings? If you fall into this category, an unexpected bill could quickly have you in financial ruins.
But all hope isn’t lost if you run into some emergencies. For instance, you can always take out personal loans.
When it comes to secured vs unsecured personal loans, which one’s right for you? Read on to find out.
What Is a Secured Personal Loan?
A secured personal loan is one that you’d take out by putting up some collateral, like your home or car. This “secures” your loan.
Typically, you can borrow anywhere from $1,000 to $50,000. In some special cases, you can borrow up to $100,000 but to do this you usually must have excellent credit.
Because there is collateral behind the loan, the lender doesn’t have to take on as much risk. If you’re unable to pay back the amount, they can just take whatever you’ve put up as collateral.
As a result, the interest rate for a secured personal loan is much lower than for an unsecured one. If you have a less-than-stellar credit score, then this may be a more viable option for you.
What Is an Unsecured Personal Loan?
As the name suggests, an unsecured personal loan is one you can get without putting any collateral down. This means you can just borrow an amount without worry that the lender will take away something important in case you default.
As you can see, the lender takes on a much higher risk with unsecured personal loans. So you can expect the interest rates to be significantly higher.
In addition, because they have to take on more risk, lenders will typically only approve people with decent or excellent credit scores. So if you have no credit, or it’s poor, you may not be able to get an unsecured personal loan.
The exception is if you choose a cosigned personal loan. This is where someone with a good credit score helps you get approved for an unsecured loan. They have to take on a lot of risk themselves, so it may be difficult finding someone to do so for you.
Bonsai Finance has some great information about unsecured personal loans with no credit checks if you’re interested in learning more.
Secured vs Unsecured Personal Loans: Choose the Right One for You
When it comes to secured vs unsecured personal loans, the right one for you will depend on your unique needs.
However, a good thing to keep in mind is that there are many personal lenders who won’t perform credit checks. Plus, these loans are quick and easy to request, as you can do so online.
So if you need cash in a pinch, and don’t have great credit, consider taking out either type of personal loan. It’ll be easy to find a lender who doesn’t perform credit checks!
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