First, note that your credit report and score will affect both the types of loans available to you and the rate you are charged. Learning what your credit score is before applying for a loan and which factors (if any) are bringing down your score can help you figure out:
- How likely you are to get approved (a score of 620 is typically the lowest score allowed in order to get approved for a regular loan)
- How competitive your rate is likely to be (the higher your credit, the lower your rate)
- Whether any items on your credit report are inaccurate or could be removed to improve your score (i.e. contact an old lender to dispute late payments or request their removal of a late payment – some lenders will allow a "goodwill" removal of a late payment on a one-time basis)
Click here to go to freecreditscore.com to obtain your updated credit score and report and to determine which factors are affecting your score.
The glaring difference between secured and unsecured medical loans is the use of collateral, which is required for secured loans. With unsecured loans, you provide no collateral.
Before moving forward with any kind of loan, understand all of your financing options and the fine print.
Whether or not your loan is secured, the lender will come after your assets if you default on your loan.
The collateral makes loans less risky for the lender. If you default, the lender will have a much easier time getting some or all of its money back since it can take ownership of your property to offset their losses.
There are also several other important differences resulting from the risk offset by your collateral (we’ll get into the various forms of collateral in the next section):
- Secured loans generally have a lower interest rate than unsecured loans (all else being equal). However, your interest rate will still be based on your credit score, income and loan terms.
- Secured loans typically allow much longer terms up to 10 years or more, while unsecured loans usually have terms of 5 years or less. Choosing a longer-term secured loan will reduce your monthly payment, but it will also erode the cost-saving benefits of the lower secured loan interest rate.
- Secured loans may allow you to obtain larger loan amounts depending on the value of your collateral (most commonly your home). Unsecured loans typically cap out around $25,000, while secured loans can be obtained for much larger amounts.
- Secured loans may be easier to obtain if you have a poor credit score.
However, secured loans have a two main potential downsides…
- Your home or other valuable property could be taken from you if you can’t pay off your loan.
- There’s lots of paperwork since secured loans usually involve refinancing your home.
- They can take longer to arrange and fund given the complexity of the contracts. Unsecured loans typically take about 1 week to fund while secured loans can take as long as 30 days or more.
So which is right for you?
Generally speaking, patients seeking medical loans of a smaller amount (under $15,000) go for the simplicity of unsecured medical loans.
If you own a home, have equity and are looking for a loan greater than $15,000 you may want to consider a secured loan…