Defining Secured and Unsecured Loans

Part 8 of a series on the California Solar Consumer Protection Guide

Many buyers of photovoltaic systems for home or business purchase their solar panels by means of a loan, also called financing. The funds may come from a home improvement loan, a home equity loan, a solar loan, or some other form of financing. Solaron of Sacramento usually does not recommend any one type of loan over another, chiefly because the right type of financing depends on every individual’s personal situation. It is important to understand, however, the difference between a secured and an unsecured loan.

What are Secured Loans?

Secured loans are very common and are the usual type of financing for buying a house, car or other piece of property. With a secured loan, the borrower must put up some type of collateral that is forfeited, or “repossessed,” if the loan is not paid according to the agreement. Usually, the collateral is the thing purchased. In the case of a photovoltaic array, the collateral for a secured loan is usually the solar system itself. For home equity or improvement loans, however, it may be the house that serves as the collateral. Therefore, with a secured loan it is very important to be aware of what part of your estate is serving as the collateral for the financing.

What are Unsecured Loans?

The classic example of an unsecured loan is a credit card. The lender simply has faith that the borrower will repay any funds that are borrowed. There is no collateral. Qualifying for an unsecured loan of considerable size usually requires a very good credit rating (an official measure of your worthiness as a borrower based on your past history with lending). Keep in mind that although there is technically no collateral with such a loan, that does not mean that the lender would not have any legal recourse against you in the event of forfeiture on the repayment agreement.

Secured loans mean less risk for the lender. Therefore, they tend to have lower interest rates than unsecured loans. The type of financing you choose will often depend on the amount of the loan, your credit rating, and how long you want to take in order to pay back the money.

Solaron has significant experience helping our Sacramento customers navigate their various options for solar financing. We encourage you to speak with one of our representatives for more information. You can contact us via telephone at 916-631-9293 or by using our online appointment request form.

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