The two major types of loans include secured and unsecured loans. Both of these have their unique purposes and advantages. By knowing the difference between the two one can make a more informed decision of what kind of loan suits his needs.
If you are considering borrowing money it is essential that you study all your available options so that you can make a better decision with regards to the type of loan you intend to get. There are two loan types that you need to consider: secured and unsecured loans. Each of them has its own unique characteristics that you need to know about. Here is a discussion between these two loans.
Let us first discuss what a secured loan is. This is basically a type of loan that is necessary when you are in the market for a huge amount of money. Car loans and housing loans are types of secured loans. They are called secured because you the “borrower” needs to put up collateral to ensure the bank that in case of default on your part there is something they could possess to recoup the money they have allowed you to borrow. What is good about secured loans is the fact that it offers lower interest rates and has a better payment and more flexible payment schedule. Other examples of secure loan types include home improvement loan, home equity line of credit, boat loan and recreational vehicle loan.
What makes secured loans more viable to a lot of people is that terms and conditions for this type have been revised in such a way that it is much easier to understand. However, it is important to note that getting secured loans is much harder because of the large amount of money involved. This means potential borrowers have to possess at least a certain credit rating to qualify and must also comply with other necessary requirements.
When it comes to the unsecured type of loan, the amount of money that can be borrowed is limited and is usually a moderate amount. It is called unsecured because unlike secured loans where you are required to put up collateral, in this one there is no such requirement. Most, if not all unsecured types of loans are short-term loans that need to be repaid as quickly as your next paycheck so to speak. What makes these loans popular is the ease by which the process of applying and getting approved goes. There are also lesser requirements by lenders for applicants to be eligible for this type of loan. Usually, lenders only ask for proof of income and a valid checking account to facilitate loan payments. Since it is unsecured, borrowers can expect higher interest rates to cover the risk of default from borrowers. Classic examples of an unsecured loan include personal loans, payday loans, instant loans, student loans and personal lines of credit.
When choosing between secured and unsecured loans it must be put to bear the purpose for which you intend to use the money you want to borrow. As these two loan types have their own distinct characteristics it is important for a borrower to determine which one would suit his needs and financial capability. By choosing the right kind of loan, one would be in a position to be responsible for the disposition of such a privilege.