When you are in need of money and your only solution is to get a loan, it is very important to know the difference between an unsecured loan and a secured loan. These two types of loan are both appealing and, at the same time, very confusing as it is hard to tell which one is better. They both have their own benefits and downsides, which makes it even more perplexing. This article will try to help you make a decision as to which of these two loans is better.
Defining Secured Loan and Unsecured Loan
A secured loan is a type of loan that requires collateral. A borrower must be able to present a valuable property before he or she will be granted a loan. On the other hand, an unsecured loan is a conventional loan that requires no collateral.
There is a certain limit to a secured loan whereby people with no property cannot apply for this loan. This seems to be a very discriminating type of loan and people then were left with no options. Good thing loan providers have thought of offering unsecured loans. This gave hope to a lot people to own a property or to buy the things they need.
Myths on Secured Loans and Unsecured Loans
Some people who are applying for a secured loan think that when they have offered their home as collateral, they have to vacate it, which is entirely false. A borrower will still live in his or her home and will never be asked to leave, unless he or she fails to pay the monthly repayments.
As for the unsecured loans, some individuals think that their properties cannot be touched by loan providers in case of failure to pay because they presented no collateral. This is true if borrowers pay their obligation promptly, but if they miss payments, loan providers will have find ways to recuperate their loss by taking possession on some of their properties.
In a secured loan, the interest rates that loan providers apply is much lower as compared to unsecured loans as there is collateral. In an unsecured loan, it is quite high as there is a greater risk for loan providers in case of the borrower’s failure to pay.
These are just the basic things about secured and unsecured loans that you need to know. There are still several things that you have to learn about, such as the terms and requirements of each of these loans.