Financial Advice

Secured or unsecured?

Loans are an inevitable part of our lives now. Although it is best to avoid being in debt in any way, it simply can’t be done. So it is prudent to be aware of the different types of loans out there. You would have seen all sorts of loan offers under different types of names or you may be using some types of loans without even knowing they are loans (like credit cards). But they all boil down to the fact that there are only two types of loans. Secured and unsecured.

Secured loans are, in a way, easier to get. The snag is in possessing an asset. It is against this asset that the lending organization will give you a loan. They are happy to do so because you are placing an asset as collateral (e.g. your house, property, car etc.). If you fail to make good on your payments, they will have the right to take possession of that asset. This is why they will easily give you bigger sums of money, lower interest rates and long periods to pay it back in.

Unsecured debts, on the other hand, possess a huge risk to the lending institution. Therefore the amount they will approve for you to borrow will be less and have a rather large interest rate attached to it. But you do not have to put up any collateral to receive it. A good example of this type of loan is a credit card. You don’t have to do much to get one, but it can get you in debt really fast and possibly ruin your credit history if you fail to pay up on time or at all.

This is a basic look at the two types of loans. If you are interested in getting a loan (and if you really need it), consult a financial expert on the matter before you proceed. This will help you avoid pitfalls in the road ahead.