Unsecured Loan vs Secured Loan

If you have been doing research and find yourself reading this article it is important to understand there are two basic types of debt consolidation loans; unsecured debt consolidation loans and secured debt consolidation loans. Take a look at the debt consolidation loan example to see if its a fit for you.

Secured loans are tied to an asset that is used as collateral in the event that you default on your loan. If you own a house or a car you should be familiar with a secured loan. If you default on a secured loan or cannot make payments according to the loan terms, the lender has the legal right to take ownership of the collateral.

Unsecured loans are not tied to an asset and are based mostly on your credit history. If you have a credit card or student loan you should be familiar with an unsecured loan. If you do not make payments on your unsecured loan, the lender has no immediate legal right to any of your assets.

So which debt consolidation loan do you choose? Which is the best option for your situation? There are no definitive answers to these question. Unfortunately, in the realm of lending and borrowing there is not a one size fits all loan option that is best. Your situation is your situation.

Unsecured Debt Consolidation Loan

Because there is no collateral backing, unsecured debt consolidation loans have a higher risk for lenders and as such have a higher interest rate for borrowers. A lender will take a long look at credit rating and credit score and with a score below 650, it may be difficult to qualify for a loan.

  • + no risk of losing assets
  • + shorter repayment term
  • – more difficult to obtain
  • – lower borrowing amount
  • – higher interest rate
  • – no interest rate tax deductions

Secured Debt Consolidation Loan

Because there is collateral backing, secured debt consolidation loans have a lower for lenders and as such have a lower interest rate for borrowers. Collateral backing can can also lead to better repayment terms and higher borrowing limits, and lower credit score are often accpeted.

  • +easier to obtain from lender
  • + higher borrowing amount
  • + lower interest rate
  • + possible interest rate tax deduction
  • – longer repayment terms
  • – risk of losing assets

A Small Leader in Business Lending

If you have read the pros and cons of debt consolidation loans and believe that this is the best option for your specific needs call our experts. CapitalFront was launched with a simple premise – create an easy, accessible and rapid process for small and mid-size businesses to fund their growth. CapitalFront strives to bring a wide array of financial products, including merchant cash advance, receivable financing, factoring, SBA lending  and fixed rate term solutions, to independent business owners nationwide. Call today or fill out our online application.



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