Most of us need a little financial help at one time or another. Maybe you have a large, unanticipated expense like a home or car repair. Perhaps it's an unforeseen medical bill. Or, maybe you are expecting a large commission check or insurance settlement and need some funds to get you through until that check arrives.
Whatever the reason, a personal loan can provide the funds you need to get you over the short-term hurdle. However, there are two distinct types of personal loans — secured and unsecured. The type that's best for you will depend on your credit score and how you intend to use the proceeds of the loan.
Secured vs. Unsecured Loans
A secured loan, as the name implies, is secured by collateral of some kind. This might be a certificate, a savings account, or a piece of personal property, like real estate or a car. If you default on the loan, the money owed to the lender will be taken out of the collateral. If the collateral is property, it will be sold and the loan payment is taken from the proceeds of the sale.
An unsecured loan, on the other hand, requires no collateral. It is guaranteed simply by your promise to pay it back. For this reason, it generally takes a higher credit score to be able to get an unsecured loan than a secured loan.
Unsecured personal loans typically have a higher interest rate, since the risk is perceived to be higher. According to data from the US Federal Reserve, the average interest rate on a 24-month unsecured personal loan is 9.34%. This is lower than the interest rate on credit cards, which averages 14.65%. UCU's personal loans prove to be some of the best in the nation, with an APR* as low as 9.74% on a 24-month loan. Click here to check out our personal loan rates.
Of course, with either type of loan, you risk lowering your credit score if you fail to repay the loan as outlined in the loan agreement.
When To Use A Secured Personal Loan
Secured loans are a good idea if you have an asset with a bank, such as a CD, that you can use to secure the loan. You won't face penalties for cashing in your CD early, and you'll get a lower interest rate on your loan by securing it with the CD account. This is especially wise if you are earning more interest on the CD than you would pay on the personal loan.
Another plus for a secured personal loan is that you will likely be able to get approved for a higher loan amount than you will with an unsecured loan. Of course, that depends on how much collateral you have to offer. Rates are typically lower when using collateral to secure a loan.
A secured loan is also a strategy to help rebuild your credit score. Click here to learn more about credit score basics.
When To Use An Unsecured Personal Loan
An unsecured personal loan might be the best choice for you if you have a strong credit score. While you'll likely pay a higher interest rate, with an unsecured loan, you don’t put up collateral so there is no worry about property being taken or savings lost if you default on your loan.
Unsecured personal loans are generally less risky than using your high-limit credit card to get the funds you need for an emergency or to bridge the gap when money is tight. The higher your credit score, the lower your interest rate will likely be for your unsecured personal loan.
Get Competitive Rates & Excellent Member Service Today
University Credit Union has been helping people like you access short-term funds for emergencies and to bridge income gaps for 70 years.
Check out our variety of personal loans and lines of credit. You can borrow as little as $500 and get your funds in either a lump sum or revolving credit line with an accompanying debit card for access. University Credit Union features the Lowest Loan Rates in the Nation Guarantee1, and applications can be completed quickly on a computer or mobile device. It's that easy.
To see for yourself just how low our loan rates are, click the button below!
See our low rates