Whenever you borrow money from an individual or bank, directly or indirectly you are taking out a loan. However, there are different types of loans. When the lender allows you to borrow the money with only your promise to pay back, this type of loan is referred to as an unsecured loan but when the lender requires that you use an asset as security for the loan, this type of loan is known as Secured Loan. This is the basic distinction between secured and unsecured loans.
Understanding the differences between the two types of loans is important in achieving financial literacy and it can have a long-lasting effect on your financial health. If you want to get a loan, you might want to see what people are saying on NorskeAnmeldelser about different loan companies such as Bondora. You will know the loan companies that you will have no problem with when you keep to your part of the bargain as well as the troublesome loan companies that you should avoid.
In this article, we will be talking about the secured loan and unsecured loan and the right choice for your business.
Secured loans are the form of loans that are backed or protected by an asset. The item purchased, such as a car in the case of an auto loan or a house of a mortgage loan. The lender can repossess the collateral when the loan is not repaid as agreed, they sell it and use the proceeds to pay off the loan.
Other items can also be used to back a loan and this includes bonds, stocks, or personal property.
Secured loans are one of the most common ways you can borrow large amounts of money. A lender is only going to loan a large sum when you agreed and promised to repay the money at the given time. Using your property as collateral is a way the lender will be sure you will do all you can to repay the loan.
Examples of secured Loans includes an auto loan, Boat loan, Mortgage, Home equity line credit, and Recreational Vehicle Loan, et. c
Advantages of Secured Financing
- You can borrow large amounts of money
- Lower Interest Rates
- Longer Repayment Terms
- Higher Borrowing Limits
Unlike a secured loan that is tied to your assets, unsecured loans are not tied to your assets, and the lender can’t repossess or seize your property as payment for the loan.
Examples of unsecured loans are students loan, personal loans, and credit cards. In case of default on your loan payments, the lender can’t seize your assets or property because there is no collateral. The lenders take a high risk when it comes to an unsecured loan.
However, before a lender can grant you an unsecured loan, you will be grade based on your Character, Capacity, Capital, and other condition (i.e the reason you want to get a loan).
MAKING THE RIGHT FINANCIAL DECISION
Depending on your business type or the reason for taking a loan. A Secured loan allows you to get approved for higher loan limits. However, it is reasonable to choose a loan that you can afford to pay because failure to repay the loan at the given time, will lead to the seizure of your collateral. It is important to choose wisely when it comes to loans. When choosing a secured loan, it is important to note the repayment period, interest rate, and monthly payment amount.