The majority of Canadians at some point will need to take out some form of personal loan to either make a purchase, consolidate debt, or pay for a financial emergency. When you are looking for a personal loan, there are a number of different options available. Two of the most common options are either to take out a secured or an unsecured personal loan. When you are looking for a personal loan, it is important that you fully understand the differences between the two options.
The most significant difference between a secured and unsecured personal loan is the collateral that will be posted. With an unsecured personal loan, you will not have to post any collateral. In these situations, the lender will rely solely on your credit worthiness when determining whether or not to provide you with the loan. With a secured personal loan you will need to post some form of collateral. If you are taking out a loan to purchase a home or car, the lender will take the underlying asset as collateral. For other types of loans, you may need to post cash, marketable securities, or other assets as collateral for the loan. If you happen to default on the loan, the lender can seize and liquidate those assets.
Cost of Loan
Another important factor to understand when you are trying to choose between a secured or an unsecured loan is the cost of the loan. Overall, you can expect to spend more money when you are taking out an unsecured loan. The reason for this is because the lender will not have any collateral, which makes it a riskier loan to provide. To ensure that you fully understand the cost of your loan, it is important to use a personal loan calculator before signing any loan agreements and closing on the loan.
Another difference between a secured and unsecured personal loan is the amount of money that you can borrow. With a secured loan, especially those that are secured by real estate, the amount of money that you can borrow can be very significant. When you take out an unsecured personal loan, the amount of money that you will be permitted to borrow can be much less. Most lenders have very specific limitations for how large of a loan they can provide without receiving decent collateral.
When you are looking for a personal loan, you may also want to consider the approval process that you will need to go through. While both loan types will require that the loan be fully underwritten, you can normally expect that the process will be more detailed and thorough when you take out an unsecured loan. Since the lenders know that there is more risk involved, they will likely spend far more time analyzing your personal finances to make sure they are properly analyzing your ability to repay the loan. This may require you to provide more information and answer more questions.
I set this blog up a couple of years ago now as a way to share my experience that I’ve gained through my school education and my real life education. It sounds geeky, but the economy is something that I’m really passionate about and it’s something that I am actually pretty talented in, so it’s great for me to share these experiences with those that may be struggling a little bit with finance and figuring out how to navigate the economy.