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Money 101 - Secured vs Unsecured Loans

Secured vs. Unsecured Loans


When it comes to borrowing money, consumers must choose between a secured and unsecured loan. The primary difference between the two types of loans is collateral. With a secured loan, you provide the lending institution with something that it can take if you don’t pay the loan off. A home mortgage is a perfect example of a secured loan. If you default on the payments, the mortgage company providing the loan will acquire the home and resell it to recoup their money.

An unsecured loan has no collateral attached to it. In this case, a lending company such as a bank or credit union will provide the loan based on the borrower’s creditworthiness and promise to repay. A short-term loan for a vacation is an excellent example of an unsecured loan. Some lending institutions also refer to an unsecured loan as a signature loan. Your signature as the borrower is your word that you’ll repay the loan. And your credit score will have a significant impact on the interest rate charged and the amount of money you can borrow with an unsecured loan.

Outside of loans from a lending institution, other unsecured loans include your credit cards, student loans, and medical bills. Typically, lending institutions will charge a higher interest rate on an unsecured loan. If a borrower fails to pay off the debt, the lender must initiate a lawsuit or turn the loan over to a bill collector for collection.

Other secured loan examples include a home equity loan, a home equity line of credit, or an auto, boat, or recreational vehicle loan.

Before you take out a secured or unsecured loan, it’s best to make sure you have a clear payoff plan. Only borrow what you know you need and can afford to pay back. Make sure you’re comfortable with the repayment timeframe. Just because you can get a loan doesn’t mean you should. Take your time and do your research before you sign on the dotted line.

Peoples State Bank offers both secured and unsecured loans, and we have banking professionals who can answer your questions and help you determine how to proceed. Contact our customer service center at 888.929.9902 to learn more.

Jacob GrellJacob Grell
Personal Banker
Jacob is an experienced personal banker at Peoples State Bank. Jacob helps customers with answers to questions about their checking or savings products, working within a budget, and ensures his customers have the right products for their personal banking needs.

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