The other day I was talking with a friend about the economy, and discussing the new world for consumer borrowers. My friend was considering obtaining an unsecured loan. Our discussion spurred a question: why, and when, is an unsecured loan a good thing for a good borrower? After all, isn’t a secured loan usually a lower APR? Here’s the quick list we came up with:

1. Nothing to use as collateral. Many people may not own a home, or a vehicle to pledge as collateral. There are plenty of legitimate reasons even the most financially sound person might not own a home, or may use public transportation. Without collateral, a secured loan is not an option.

2. Convenience. Even when looking to buy a vehicle (a common reason to seek a secured loan), sometimes it’s just more convenient to go for an unsecured personal loan. When you’re buying a used car from a private party, traditional auto financing isn’t so neat and easy. My credit union wants borrowers to “secure the sale”, fill out a form with VIN, and wait up to 2 days for processing to get a check. But what car seller is going to wait for that if they have another offer? Other banks are more practical in their requirements, but sometimes a personal loan still involves less paperwork and hassle.

3. Not wanting to tie down your collateral. Plenty of homeowners in today’s economy will tell you how complicated things get when you need to sell your home but owe more than it’s currently worth.  Secondary debts not related to buying the home or car complicate things further. Someone who plans to move in the next year or two might avoid using their home as collateral and instead turn to a personal loan, and even someone not explicitly planning to move might shy away from a home equity line of credit —just to keep their options open.

4. Does a secured loan really involve a lower APR? For someone with excellent credit, the interest rate on a secured loan to purchase an item with traditionally higher interest rates (such as a motorcycle or RV), may not be much lower than an unsecured personal loan. And for someone looking to secure a loan with their home, the loan fees are typically high. To truly determine which loan costs less in the long run, it will often come down to comparing fees— not interest rates.