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Unsecured or Secured Loan: Choosing Your Loan

When thinking about borrowing money, you need to carefully consider all options. Current rates, the amount you need to borrow, terms of repayment and your current obligations can all have a significant impact on your loan choice.

You'll find that there are many loan options, too – each designed for a specific borrowing purpose. You'll want to be certain that the loan you're applying for is the one that best matches your borrowing needs.

When shopping for a loan, you'll probably hear the terms unsecured and secured. What are they? What do they mean? Which is best for you?

Unsecured Loans

When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources. Granting the loan is not based upon "collateral" - meaning that you do not have to give the lender rights in a specific asset, like your home or car, as security in case you become unable to repay.

Unsecured loans are usually offered at higher rates than secured loans and have lower borrowing amounts.

Examples of Unsecured Loans

  • Personal Loan
  • Personal Line of Credit
  • Student loans
  • Some home improvement loans

Secured Loans

A secured loan is usually needed when borrowing larger amounts to fund major purchases. A secured loan is contingent upon the borrower providing "collateral" to ensure repayment. For example, a popular secured loan is a Home Equity Loan. To obtain a Home Equity Loan, you must give the lender rights in your home as collateral; a mortgage is written against it. Likewise, with an auto loan, you are using the auto as the collateral for the loan. In the case of default, the lender can take possession of the vehicle.

Secured loans usually offer lower rates, higher borrowing limits and longer repayment terms than unsecured loans.

As the term implies, a secured loan means you are providing "security" that your loan will be repaid according to the agreed terms and conditions. It's important to remember, if you are unable to repay a secured loan, the lender has recourse to the collateral you have pledged and may be able to sell it to pay off the loan.

Examples of Secured Loans

  • Home Equity Loan
  • Home Equity Line of Credit
  • Auto loans (new and used)
  • Boat loans
  • Recreational vehicle loans
  • Home improvement loans

Dollar Bank representatives are available to help you determine what type of loan you need for your borrowing situation.

Try our loan calculators.

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