Understanding The Difference Between Secured And UnsecuredLoans | MoneyInMinutes

1. UNDERSTANDING THE DIFFERENCE BETWEEN SECURED AND UNSECURED LOANS Most people today need to avail of a loan for covering specific expenses that help to make their lives more comfortable and convenient. From buying a house or a car to covering the expenses of a medical emergency or even financing a vacation, a loan can be availed for all these reasons and many more. There are several different types of loans, including home loans, education loans, payday loans, ​instant loans available to borrowers to meet specific financial needs. However, all of these different types of loans can be broadly classified into two major categories, namely secured loans and unsecured loans. Having a proper understanding of both these types of loans is essential for the borrowers to choose the right option that fulfills their requirements satisfactorily. An Overview Of Secured Loans Secured loans are loans that are protected by some asset that the borrowers put up as collateral against the amount they seek. This asset can include anything that the lenders consider to be having an almost equal value as the amount being lent. The assets may thus include a house, a car, a piece of land, and even precious metals and stones. These loans are much preferred by lenders as it minimizes their risk of loss due to the inability of the borrowers to repay the debt. In such cases, the lenders can take possession of the asset and sell it in the open market to recover their money. Some key features of secured loans are listed below. · These loans are generally difficult to qualify for and in most cases, the credit score of the borrowers plays a critical role. · They often come with high borrowing limits although they can also be availed for smaller amounts. · Since these loans are protected by some collateral, they usually have a relatively lower interest rate. · Most secured loans have longer repayment terms which result in a lower monthly EMI for the borrowers. Basic Features And Aspects Of Unsecured Loans Unsecured loans are the opposite of secured loans and have gained much popularity in recent years. These loans are provided without seeking any collateral or protection from the borrowers which makes them a high-risk investment for the lenders. In most cases, the lenders assess the suitability of a borrower for availing such loans based on various factors, which, in turn, might differ from one lender to another. These factors include the following. · The credit score, employment history, and the references provided by the borrowers.

2. · The current financial status of the borrowers including their income and liabilities. · The liquid assets that are available to the borrowers such as their savings and investment amounts. · The ability of borrowers to offer anything as collateral against the loan in case of need. · The terms and conditions of the loan are generally decided on an individualistic basis for different borrowers. As mentioned before, unsecured loans pose an extremely high-risk for the lenders in terms of losing the amount being borrowed. The most important features of these loans are listed below. · These loans come with a high interest rate, which is used by the lenders as an assurance to recover their maximum amount. · Given that the loans are not protected, they have a short repayment tenure to ensure faster payback. · They are easy to qualify for and can even be availed by people with a poor credit score. · They are generally offered for only smaller loan amounts, although it might be possible to get unsecured personal loans for higher amounts. Making The Best Choice When it comes to choosing between a secured and an unsecured loan, buyers should consider the above-discussed features of each type of loan along with their specific needs. People, having an immediate need for limited funds can opt for ​quick loans online​, which are unsecured and can be availed instantly. On the other hand, opting for a secured personal loan may be the best choice for people in need of extra funds for financing the education of their children or covering home renovation expenses. The important thing to remember is that each type of loan can prove beneficial for the borrowers if it is managed properly and repaid in time. In case of any confusion, the borrowers should seek professional advice and guidance before making the final decision to avoid making the wrong choice that may ultimately land them in a financial mess. Original Source: https://blog.moneyinminutes.in/understanding-the-difference-between-secured-and-unsecured-loans/