Should I Get a Secured or Unsecured Loan?

Should I Get a Secured or Unsecured Loan?

Secured loans

A secured loan is a loan that requires the property owner to provide an asset (typically a house) as collateral for the money that is being borrowed. An asset is a form of ‘security’ to the lender if the money can’t be repaid by the borrower. The lender places a lien on the borrower’s property. In the case that the loan is not repaid, then the lender can take possession of the property. Secured loan lenders undertake less risk compared to unsecured lenders. Thus, many secured loans have lower credit score requirements, don’t impose prepayment penalties, and the interest paid is tax-deductible.

Residential homeowners with solar panels on their roof.

Are secured solar loans right for you?

Secured solar loans are right for you if you are more concerned with long-term loan value than short-term cash flow. In addition, you should get a secured solar loan if you feel comfortable with using your home as collateral and have a tax liability big enough to benefit from the tax-deductible interest.

Unsecured Loans

Unsecured solar loans do not require the borrower to use their house as collateral. This means that the lender cannot foreclose on the borrower’s home. Unsecured loans pose a higher risk for lenders and as a result have high-interest rates. The interest rates paid on these loans is most likely not tax-deductible.

Happy Family with Solar Panels

Are unsecured loans right for you?

Unsecured solar loans may be right for you if you want to maximize your short-term cash flow and focus less on the long-term value. It is also right for people that do not want to use their home as collateral and don’t have enough home equity to pay for the solar panel system. Unsecured solar loans are also beneficial because they are easy to access and you can receive approval for one within minutes.