Generally, loans can be categorized into two major classifications: secured and unsecured. Picking which one you’ll get is critical in preparing for your repayment plan. So first and foremost, you have to be familiar with the difference between these two loan types.
What are secured loans?
Secured debts are those that require the borrower to present an asset, like a property title, a car or even stocks to guarantee their loan. These are the same as collateral loans wherein the bank may take ownership of your property should you fail to pay the amount you borrowed.
What are the advantages of taking out a secured loan?
Since the loan is secured, you may be granted higher loan amounts. The background checking is also fast-tracked so your application will get processed quicker.
Secured loans also offer lower interest rates and longer repayment terms, since it doesn’t put lenders at risk of losing money. This is the best option for people who do not earn much, or do not have good credit history. For this type of loan, lenders get assurance that even if you don’t have enough cash, they can take possession of your assets to recover the money they lent you.
What are unsecured loans?
Literally the opposite of secured loans, unsecured debts do not require any form of collateral. All you need to do is convince the lending institution that you can pay back what you are loaning out. This includes credit card loans and payday loans.
Loaning out without collateral is risky. Therefore, your lender will seek to cushion the risk by offering smaller loan amounts, higher interest, and shorter payment deadlines.
What are the advantages of taking out unsecured loans?
Still, it is a good enough option for those who do not have any properties listed under their name. It is best for those who need immediate cash and need more flexibility in terms of payment and maturity. Furthermore, if you prove to be a good payor of unsecured loans, your credit score will improve vastly.