Secured vs. Unsecured Loans | Metro Credit Union (2024)

FAQs

Secured vs. Unsecured Loans | Metro Credit Union? ›

Secured loans typically come with a lower interest rate than unsecured loans because the lender is taking on less financial risk. Some types of secured loans, like mortgages and home equity loans, allow eligible individuals to take tax deductions for the interest paid on the loan each year.

In general, secured loans are easier to qualify for since your collateral gives the lender additional peace of mind — if you fail to make payments, the lender can recover its money by seizing and selling your asset. For that reason, secured loans also tend to have lower interest rates than unsecured loans.

Are secured loans easier to get? Generally speaking, yes. Because you're usually putting your home as a guarantee for payments, the lender will see you as less of a risk, and they'll rely less on your credit history and credit score to make the judgement.

In addition, credit union members are able to vote in policies and make decisions that are more friendly to borrowers. This means your credit union loan approval odds are often more favorable than they would be if you choose to work with a larger, more impersonal lender.

Lenders are more likely to approve you for a secured loan than an unsecured one because they can take the collateral if you fail to make your scheduled payments. This makes the loan more risky for you, however.

Payment history is weighed the most heavily in determining your credit score, along with your total outstanding debt. Generally, the required credit score for a personal loan is at least 580. To qualify for a lender's lowest interest rate, borrowers typically need a score of at least 800 and a high income.

While secured credit cards are a popular option for building or rebuilding credit, they aren't necessarily better or worse for your credit than unsecured cards. In fact, the type of card, the card's fees, the interest rate and whether it's secured don't have any impact on your credit scores.

Secured loans, unsecured loans, debt consolidation loans, college loans—these are just a few types of personal loans, and they all come with specific guidelines attached. If you apply for a loan and the plan you have for the money doesn't align with the rules laid out by the lender, you could be rejected.

You may be refused for a secured loan if the item as collateral is considered not valuable enough. This is important, as the collateral possession will be the item that is used to retrieve money back if you are unable to pay.

Secured loans are typically easier to qualify for and have lower interest rates because they pose less risk to the lender.

What is the easiest credit union to get approved for? ›

PenFed is the easiest credit union to join on this list. It doesn't require you to have any specific affiliation to become a member. If you don't meet Alliant's, BECU's or First Tech's traditional membership guidelines, you just need to make a small donation to a partner charity or organization.

Limited accessibility. Credit unions tend to have fewer branches than traditional banks. A credit union may not be close to where you live or work, which could be a problem unless your credit union is part of a shared branch network and/or a large ATM network such as Allpoint or MoneyPass.

This allows them to look at your history from the past seven years and see whether you've typically made payments on time. For a $30,000 loan, you'll typically need a credit score above 600 just to qualify or above 700 to get a competitive rate.

Secured personal loans are backed by collateral like a boat, car, home or RV. You'll need to provide paperwork showing proof of ownership and the lender will need to determine what the asset is worth to lend on it.

Getting a secured loan can negatively impact your credit score initially. This is usually because the lender performs a hard credit check which impacts your credit rating. Although, if you make all your payments on time, a secured loan can improve your credit score over time.

With a mortgage, you can borrow 70%, 80 % or 90% LTV (loan-to-value) of the overall property's value and the remaining is just the deposit. But with a secured/second charge loan, this is second in the list, so the lender can only offer you less, such as 50% or 60% LTV maximum.

Unsecured loans are offered by banks, credit unions and online lenders. Unlike secured loans, they're not backed by collateral and may be harder to get approved for than a secured option. However, they come with less risk as you won't need to worry about your assets being seized should you fail to make the payments.

Homeowner loans (AKA secured loans), usually take between three to four weeks to process. Exactly how long it takes will vary depending on your personal circ*mstances and the time it takes you to complete the paperwork.

Interest rates

Northern Inland Credit Union, for example, currently offers a personal loan for a new car for 6.99%. Secured loans are also generally easier to obtain even if your credit history is not great, as long as the lender deems the asset you're putting up acceptable.