Secured vs Unsecured Holiday Loans

A holiday loan is a type of personal loan.  There are two types of holiday loans to consider - secured and unsecured.   

Holiday loans are a twist on a common practice by major tax preparation chains. For a long time, tax preparation firms such as H&R Block and Jackson Hewitt would determine your refund and immediately make it available as a loan to you at an extremely high interest rate. However, these loans were available only at tax time. Now many tax preparation firms offer both secured and unsecured holiday loans based upon a borrower's estimated refund.

Take a look at the benefits and drawbacks of both secured and unsecured holiday loans to determine which type is best suited to your needs.

Secured vs. Unsecured Holiday Loans

Unlike a secured holiday loan, an unsecured holiday loan requires no collateral. However, they're more difficult to get because an unsecured holiday loan is riskier for the lender, especially if the borrower has poor credit.

For borrowers in these circumstances, chances improve if they apply with a cosigner with a better credit rating. The cosigner must be someone both able and willing to meet your payment obligations if you cannot. An additional advantage to applying with a cosigner is the interest rate will likely be lower. More broadly, interest rates on holiday loans are significantly higher than those on conventional loans.

One advantage of an unsecured holiday loan is that over the period of the loan's term, a borrower with poor credit can improve their credit score if they pay the loan back on time.

A secured holiday loan is an asset-based loan. The borrower pledges an asset such as a house or a car as collateral for the amount of the loan, including the interest charged. The benefit of a secured holiday loan is you may be also able to get a lower interest rate and more manageable monthly payments. Furthermore, it's easier to get approval for a holiday loan that is secured with a collateralized asset. If you are unable to keep up with your payments, however, you will risk losing the asset you have pledged to secure the holiday loan.

Unlike other asset-based or transitional loans, with both secured and unsecured holiday loans, an extended repayment period may be possible. This permits a smaller, manageable payment obligation each month and makes it less likely the borrower will fall behind on what is owed.

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