Applying for a loan means you need to know for sure all the related terms and issues. Among the most commonly used terms are secured and unsecured loans. What are they, you might ask?
Secured vs Unsecured Loans
In most cases, you can choose between a secured and unsecured loan. How much you intend to borrow will help you determine which type of loan to choose from. Fundamentally, secured loans are, as the name implies secured against certain assets or collaterals you have. In other words, you might be able to borrow more. On the other hand, unsecured loans are those that do not have any form of guarantee which means that the amount would be quite limited.
Why consider unsecured loans?
As mentioned, you will consider any of the two depending largely on how much you want to borrow. The main benefit of getting an unsecured loan is that it requires lesser paperwork and documentation. This means that you will need to have an exemplary credit score to get this loan approved. This simply means that you are judged based on your credit score which helps to foresee your ability to pay back the loan.
Another main factor of unsecured loans is that the interest rate might be higher. In most cases, unsecured loans involve people intending to apply for personal loans, hire purchase loans or getting involved in debt management programmes.
How about secured loans
On the other hand, secured loans take a longer time to process. The interest rate is lower because the bank is assured that they will get their money back. In the event that you fail to service the loan, they have the right to forfeit the collateral.
The main reason why people take secured loans is to get a higher loan. This is because they are backed by some form of asset. In other words, there will be a more elaborate due diligence process involved. In fact, there will be more efforts required before your application can be approved. This is usually applied by those who are looking to buy high-priced properties or for businesses.
Which one to decide?
The decision making process is quite simple. All you need to do first is to see what you are looking to pay for and why are you applying for the loan. The amount will ascertain which loan to go for. If you have an asset to use as collateral, the bank will be more than happy to oblige in offering you are high amount loan.
