Secured or Unsecured Loan to Pay Off Debt Safely
Making the decision to address your debt issues is the first important step towards achieving complete financial freedom. If you’re making only the minimum payment, you can check with the help of a credit card payment calculator how long it would take you to repay the debt.
Normally it takes longer to repay the loan by making only the minimum payments since you would be paying more on interest. Hence, instead of paying a lot of interest over a long time it is better to get rid of the debt with a lump sum payment. This can be done by consolidating your debts through secured or unsecured loans.
Both secured and unsecured debt consolidation loans are available in the market and it sometimes can be difficult to choose the right option without putting your financial future into jeopardy. Hence, you need to make an informed decision. The pros and cons of both the secured and unsecured loans have been discussed in the following sections.
Pros and cons of secured loan:
The secured loan would require you to put collateral which can either be your home or car. Hence, it’s easier to get secured loan since the lender retains interest in the property. The interest rate on a secured loan is also lower than unsecured loans.
However, the secured loan puts you at a higher risk of losing your home when you default. Moreover, you can’t get discharged on the secured loan if you need to file bankruptcy in due course.
Pros and cons of unsecured loan:
Unsecured loan, on the other hand, doesn’t require collateral. It is only a variant of personal loan where your signature on the loan document acts as a guarantee for repayment. But unsecured loan usually requires better credit score. Also, the interest rates are higher since the lender is assuming greater risk by lending without any guarantee. However, on the positive note, unsecured loans can be discharged under bankruptcy.
The final decision, however, would depend upon your goal and eligibility. But you must check all the options as well as shop around to compare the cost of borrowing before signing the loan document.
Author: Robin Williams
Tags: debt consolidation loan, secured loan, unsecured loan
