The moment you enter any financial institution you may feel intimidated by the multiple loan options. You, being a layman, are far from fetching any good ideas about the type of loan you may require depending upon your wallet and your needs. To be vividly honest, most of us have no clue about even the types of loans that exist in the financial market. To find your answers, you first need to understand that there are two types of loans: secured and the unsecured one.
What is a Secured Loan?
On revealing the details of these sorts, we find out that as suggested by the name itself, secured installment loans for people with bad credit are protected or guarded by any asset. They work on the principle of home equity which is basically the market value of your home. People prefer secured loans over the unsecured, which is evident by the name itself; pun intended.
A lien is put into practice when you make a purchase with your loan. The bank or the financing company will have a deed in your name which will be continued to the date when you pay back the loan amount. Secured loan comes with interest rates and all applicable fees, which you as the borrower are bound to pay after having signed the clause and agreement on the loan. The best thing about these loans is that they ensure a larger amount of money than an unsecured loan. It only makes sense that any lender will not easily lend you money basing on your vow to pay back, the institute or the guy definitely needs some sort of assurance from your end to begin the procedure.
Your asset that was used to guard the loan is the guarantee of the repayment under the deadlines. Do make sure to pay back the loan otherwise you risk losing your asset to the hands of the lender. Secured loans are generally low rates with long repayment period. Some of the common examples of secured loans are:
- Home Equity Line of Credit
- Auto Loan
- Vehicle Loan
- Title Loan
What Is an Unsecured Loan?
Unsecured loans are exactly opposite of secured loans. They take into account details of credit card purchase, personal loans, student loans etc. However, as a lender, the risk or repayment is high because of the fact that no background property or asset is there to hold you back, and only the scenario of your financial resources allows you to take this loan. For this condition to apply you need to fill up the 5 C’s of credit. Your character, capacity, your capital, conditions and collateral are the five criteria upon which your financially credibility to pay back the loan is judged. Your creditworthiness is the positive synergy of these C’s and only an affirmative amalgamation of these 5 will make you worthy of a loan. So make yourself worthy to be judged financially and be resourceful, but in a positive manner. Economic conditions, rules and regulations and terms and agreements to pay back the debt are involved in notes payable of your unsecured loan.
Should I Get a Secured or Unsecured Loan?
The choice of loan depends largely on your need. If you need to buy yourself a car, you might go for a car title loan and if your wedding is around the corner and you need things done as soon as possible you are likely to take unsecured loans. In the end it is all about your choice and need that define the nature of the loan. Often people tend to look up to unsecured loans as they do not have to mortgage anything or put anything in their back that they might risk losing to the company. Under such circumstances, people stay away from secured and go for unsecured. The basic difference between secured and unsecured loan is that in the former one you are immediately handed over a big liquid asset or loan for your need with low interest rates and long term of paying it back in exchange with your backup asset whereas in the latter, you do not have to risk your property or asset only a matter of your worthiness defines your acceptance or rejection of the loan. The interest rate on an unsecured loan is therefore higher because you aren’t putting up anything against your borrowed amount which will be confiscated or seized in the event of failure to pay back the loan. If your financial resources are not worthy enough, you may not qualify for an unsecured loan. The only pitfall of the secured loan is possession of your backed up asset or property and you wish that not to happen. Before taking up any loan, consider the following guidelines
- Your financial resources
- Your credit position
- The goodness of your credit is a must for any loan type
- The sort of interest rate that you can easily handle and afford with hinge
- Whether you require huge amount or a small one in loan
- Your ability to pay the loan back in assigned time period
- Ultimately, your collateral to support your spine
Deeper scrutiny of local banks, credit unions, lending firms and detailed analysis of all the relative money lending institutions will help you make an informed decision regarding your wallet strength and affordability. The pros and cons to both the sorts are different and find value in themselves; only your credibility and manageability will let you qualify for the terms and agreements embedded by the financing company. To most people, interest rates and installment payments can be a point of discussion and scrutiny, but it is recommended that you sit yourself back and give time to decide. Both the types come with their perks and boons but you can decide for yourself.