An Overview Of The Striking Difference Between Secured And Unsecured Loans

An Overview Of The Striking Difference Between Secured And Unsecured Loans

In our journey for the search of the best financial options, at times we caught ourselves in a bewildered state because of the wide availability of options, the major ones being, secured and unsecured. Both the types of loan have their own share of advantages and disadvantages. Broadly speaking both secured as well as unsecured loans is a type of personal loan.

Now, let's explore both the types in this article and find out what are the differences between the two?

Well! Let's start with Secured Loans. Secured Loans, as the name suggests necessitates a security against the loan taken. The type of security required could be any, such as, home, shares, bonds, car, jewellery et al. However, the most commonly used type of security is the borrower's home. Going back to its origin, Secured Loans can be considered as the conventional type of borrowing. To put up an example, in yester years, people used to keep their land or home in order to take up a loan. The tradition has been followed till today.

There are a number of circumstances when Secured Loan counts as a better option to the borrowers. Let's discuss some of them: the major benefit of taking up a Secured Loan is the lower interest rate offered. With Secured Loans, you can also enjoy a favourable term. A Secured Loan helps the borrower to enjoy a high level of flexibility. Some lenders of Secured Loans even extends the period of repayment in accordance with the borrower's affordability.

However like any other type of borrowing, Secured Loan also has its own shades of disadvantages. The major one being, if you fail to repay the loan your assets may be repossessed by your lender. Secured Loans generally are restricted to home owners which at times turns out as a disadvantage.

Now, let's shift our attention to Unsecured Loans. After discussing the major advantages and disadvantages, it might come as no surprise to learn that around 90 per cent of all loans arranged fall into the unsecured category.

The reason being, Unsecured Loans do not necessitates any type of security, be it home or any assets. Unsecured Loans came as a rescue to the tenants and the home owners who do not have any collateral to offer. However, it should be remembered that since the lender faces a higher amount of risk in Unsecured Loans because of no collateral attached. The lender tries to compensate the risk by charging a higher rate of interest. This very feature of the Unsecured Loan turns out as one of the major disadvantages. Unsecured Loans generally fails to offer its borrowers the flexibility of extending the loan term which can be counted as a pitfall when compared to Secured Loans.

Whatever type of loan you might choose. Before selecting your option, you must weigh out all the pros and cons. It should be kept in mind that whether secured or unsecured, both the loans are meant to be repaid. So, make sure to understand all the features of both the types of loans. Compare the deals and after careful consideration choose the one that suits your requirements perfectly.

An Overview Of The Striking Difference Between Secured And Unsecured Loans

An Overview Of The Striking Difference Between Secured And Unsecured Loans

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