When looking around for loans, you basically have two choices; either a secured loan, or unsecured loan. But choosing between these two options can be very difficult if you do not have enough information and knowledge about them. More importantly, you must know the terms and conditions that are attached to applying for any type of loan. This way, you will have a better chance of getting a loan that fits your needs, preference, and budget.
What are the Differences between Secured and Unsecured loans?
While there are many differences between the two, both of them have the ability to legally enforce what had been declared in the contract. Furthermore, before you can be approved for your loan, you need to undergo certain tedious background checks. This is carried out so that the lender will have assurance, that the loan will be repaid.
- Collateral requires an identifiable real asset that will serve as a guarantee for the lender. If the borrower can not pay the outstanding balance, or meet his or her end of the contract, the lender will have the right to take the collateral as mentioned in the contract.
- Interest rates – in general, a secured loan has lower interest rates compared to an unsecured loans. The reason behind this is that there are lesser risks involved in a secured loan for the lender. In case the borrower cannot pay, the lender can take the collateral property and sell or do whatever with it just to regain the value of the borrowed money. Unlike with unsecured loans, the lender will just have to take a bigger risk because there is no collateral involved.
Which is better?
When it comes to which one you will choose, it is best that you do a self-assessment. It is not enough to choose according to which feels right. It is imperative that you explore the different possibilities and options. Discern which one of them is worth the risk. If you are going to get a loan because you want to pay another creditor or you want to simply improve your credit history, then an unsecured loan can be used. But secured loans can also help you better your credit history, because it has lower interest. Whichever of the types of loan you will prefer always remember to read the terms and conditions that are involved in the contract. This way, you can avoid unpleasant future surprises.