A secured loan is a credit obligation that has the backing of a property. You as the borrower have to attach a property which could be a house or a car. This kind of loan is usually available to individuals who own properties. The loan usually involves borrowing a huge sum in cash which the property attached as security is able to cover. The interest rate offered on this loan is usually variable and also depends on the kind of security that you want to attach to the loan.
Unsecured loans are credit advancements offered to individuals who do not offer any property as collateral. These are usually of lower amounts in cash since the loans are usually risky. The lender has no alternative when it comes to recovering the loan amount in case the borrower has difficulty in making payment for the loan borrowed. Unsecured loans are usually given to individuals who have a good or fair credit history. However, there are also alternatives for those with a bad credit history.
Pros and cons of secured loans
It is easy to borrow loans of a large amount when applying for secured loans. This makes it easy to use this loan for large projects since you do not have to worry on where next to get the cash form your big project.
High approval rates are known in the case of secured loans. This loan is considered as a less risky loan since you have your assets attached to the loan. It is easier for the lender to approve the loan knowing that you as a borrower will be dedicated in paying back the loan. As long as your financial status allows you to repay the loan, it is easily approved.
Secured loans have a longer repayment period. This allows for the payment of flexible installments on a monthly basis. As a borrower, you do not have to strain while paying for the loan you tool up. This makes it easier to take up a loan of huge amounts without having to stress over how you will manage to repay it.
This loan is risky to the borrower. Failure to meet the required payments means that you risk losing your assets. You can easily lose your home or car or any other property that is attached to the loan. This makes it important to consider carefully the thought of taking up a secured loan.
Penalties can be associated with secured loans depending on the loan agreement. You should carefully read the loan terms. In some cases, lenders penalize clients for early payment of the loan thus making it impossible for the borrower to clear the loan early without incurring additional charges.
Pros and cons of unsecured loans
They are the easiest way to get your hands on cash. Unsecured loans are the best forms of emergency loans. They are easy to process and take a short time.
They are flexible loans that allow you to borrow small or large amounts of cash. The repayment period is also flexible allowing you to pay for the loan within a few months or a few years.
This loan can come with grace period. You can be offered a month or two as grace period. This is as a holiday for you where you are not required to pay the loan. Repayment can start after the stated grace period is over.
The interest rate of unsecured loan is high. This is especially the case on the small loan amounts as well as depending on an individual’s credit history. Those with a bad credit record often pay a higher interest rate due to the associated risk. The high interest rate is usually associated with the risk involved with this kind of a loan.
Unsecured loans are open to individuals with all sorts of credit history. Both those with poor credit records as well as those with good credit records can apply for unsecured loans with a high chance of getting an approval.
This loan is risky to the borrower. In case the borrower is unable to repay the loan, the lender has no fall back plan. This has resulted in keen scrutiny on applicant’s financial position to ascertain if one is able to pay for the loan or not.