- December 7, 2020
- Posted by: Carter Davis
- Category: News
More than likely, you won’t have any physical or financial collateral on the line if you begin to miss student loan payments. However, if you had a poor credit score when you began applying for loans, there’s a chance that a lender offered you a secured personal loan for your higher education fund. Whether you’re deep into your loan payments or you haven’t decided on a lender yet, you need to know the difference between secured and unsecured student loans.
Unsecured Student Loans
An unsecured loan is a loan that a lender gives to you based wholly upon your credit score and history. Most student loans fall under the unsecured category since you’re not putting any collateral on the line with the lender. As a teenager fresh out of high school, you likely wouldn’t have much collateral to put up for a secured loan anyway.
Your interest rate with an unsecured private loan will be higher than if you had a secured loan. Many times, teenagers will cosign private loans with their parents to use their credit scores for better interest rates—though this isn’t always possible. A cosigner is responsible for unsecured student loan payments if you fail to pay them back. Federal loans have interest rates set by Congress, and they won’t require you to have a credit score at the lending date.
Secured Student Loans
Secured loans are commonly used for auto and home loans since a car or a home is collateral that the bank can take away from you if you fail to pay back the loan. Secured student loans are rare, but not unheard of. If a student owns a home, they can use a home equity loan to repay their student loans. It’s also possible to take out personal loans for student loans if you have poor credit. You may use a personal loan for smaller school expenses, such as books or school supplies.
If you have a secured student loan, defaulting on repayments may be an even scarier process, as the lender can take away whatever you used as collateral, whether it’s your car, home, or savings. Seeking help from a student debt relief company such as Hope Credit can ensure that a malicious lender won’t take any of your personal property. We’re also here to further your understanding of secured vs. unsecured student loans and what’s at stake when you default on repayments for either type.