What Is The Difference Between Secured And Unsecured Personal Loans?

September 25, 2013

Loans are complex at the best of times. There are many elements enveloping the processes of lending and repaying those loans that, through the years, developed into different branches and categories.


Personal loans fit into the common, regular type. These are available to people to pay off smaller sorts of credits like a monthly bill or a credit card bill, or for them to afford sudden, much needed purchases. Personal loans are widely offered, given some standard requirements and processes.


The Differences


Personal loans can either be secured or unsecured. Unsecured personal loans have a higher interest rate because establishments that release these loans do not require collateral. It sounds easier, but in truth, this could raise problems later on when you cannot meet your payment. You would face legal charges or they could collect directly from your salary. Unsecured loans, given that the lender has lesser security, always give higher interest.


Secured loans, on the other hand, complete a standard process beneficial to both parties. Lender and borrower would come to understanding about the modes of payment. The creditor or lending organization will be assured that the borrowed money will be repaid in the proper time without pulling so much from the borrower to throw him off his means.


Collaterals serve as the utmost form of security. It serves as a trust factor to the money lender and will serve as an impetus, a motivating factor, to the borrower. This creates a pact between two parties that will allow them to respect what bond they will swear to.


Also called “Homeowner Loans”, secured loans usually offer higher borrowing capacity (this is also affected by how much the collateral you are pledging costs) and lower interest rates. Thus, you could borrow higher amounts to cover unexpected expenses or other impending debts.


Personal loans, regardless of its types, can serve as a faster avenue to obtaining the money you need hastily. It is always better though to consider what will protect your interests, what offers safer alternatives, and could really help you in this time of need.