What are Secured Loans and Unsecured Loans?

What are Secured Loans and Unsecured Loans

What are Secured Loans and Unsecured Loans?

 

Secured Loan: Secured loans are secured by an asset. The item such as a house or a car can be used as collateral. The recipient holds the contract or title until fully paid. Other items can also be used to back up. This includes stocks, bonds or personal property.

Secured loans are the most common way to get a large loan. A lender is only going to give a large loan with the promise that it will be repaid.

A secured loan means that you are securing that your loan will be repaid. The risk is that if you cannot repay the Loan, the lender can sell your security to repay the loan.

Merits of Secured Loan:

  1. Longer Repayment Terms
  2. Higher Loan limits
  3. Lower Interest rates

Examples of Secured Loan:

  1. Auto Loan: An auto loan is an auto financing option that you can get through a dealer, a bank or a credit union.
  2. Mortgage: The mortgage is a Loan taken by keeping house as collateral. Your monthly mortgage payments will consist taxes and insurance along with the principal and interest etc.

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Unsecured Loan:  Unsecured loans are the opposite of Secured Loans. This includes Student loans, Personal Loan etc. Loan lenders take more risk by giving this loan, as there are no assets to recover in case of default. That is why the interest rate is high.

If you are denied an unsecured Loan you may still be able to take a Secured Loan. But you have to have something of respect that can be used as collateral.

The Unsecured  loan lender believes that you can repay the loan because of your financial resources.

Examples of Unsecured Loan:

  1. Personal Loan: Personal Loan is generally given to any Individual by accessing his Financial Status. He can be a Business Man or a Job holder. Generally, such type of Loan is given to an Individual without any collateral.
  2. Student Loan: Student’s Loan is given to students to finance any higher education. Here, also Loan is given without any collateral etc.
  3. Home Renovation Loan: This type of Loan is given by the lender for Home Renovation or Home Improvement.

 

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