Let’s say there is no scarcity when it comes to borrowing a loan. With the influx of loan providers including the bank and private lenders; it is tough to make the decision. But; before you go ahead to borrow a loan, there’s an important thing to know and consider. There are 2 types of loan available – Secured loans and Unsecured Loans.
Let’s understand the difference between secure and unsecured loans here:
You might have come across the word “Personal loans”; yes these personal loans are unsecured loans. These are collateral free loans; which means it doesn’t require offering anything against getting the loan. Without collateral the bank will wish that the money is repaid soon. Usually; the rate of interest is higher when we list down the difference between secured and unsecured loans; the loan tenure offered are shorter. Some of the common examples of unsecured loans are credit card loans, personal line of credit etc.
The eligibility majorly depends on your credit score, income and the ongoing loans and liabilities. The loan is usually used for personal purposes such as wedding expenditure, vacations, home renovation, settling credit card payments, emergency medical expenses and so on.
The banks as well as private lenders may refuse to approve the loan under any circumstances which can be
- Bad credit or no credit
- Misleading information in loan application
- Unable to attach right documents
- Incomplete information
Secured loan is one of the loan categories which ask for collateral against the loan money. The collateral can be anything from valuable jewelry, assets, property etc. When approved of secured loans the bank/lender will be holding the title of the collateral until you repay the loan in full.
If an individual within the loan tenure is unable to repay the loan amount; the bank/lender holds the right to sell of the collateral and recover the debt. The borrowing limit is higher when compared to unsecured loans. Usually; entrepreneurs are seen taking secured loans for expansion of their business, getting new inventory/machineries, adding new units to the business and so on. Some of the common loans of secured loans are vehicle loans and mortgage loans.
The eligibility criterion is mostly same like that of unsecured loans. However; the rate of interest is low and loan tenure long.
Before You Make Decision
Both unsecured and secured loans come with pros and cons. And it is important to know under which circumstances you are borrowing the loan. Have a clear and thorough understanding of the difference between secured and unsecured loans. Since; it an important financial decision and the installments can go a long way; it may turned out to be costly incase if you haven’t thought of including in your monthly budget.
Try to curb expenses and ensure that you are able to pay a lump sum amount in between to pay off the loan. If you have any queries ask the loan representative. Read the fine print carefully and ask for the processing fees or any other charges it include. Only shortlist the loan you think you can afford.
However; the rate of interest is low and loan tenure long.
If you have any queries ask the loan representative. Read the fine print carefully and ask for the processing fees or any other charges it include. Only shortlist the loan you think you can afford.