What is the difference between a secured and unsecured loan?
Secured and unsecured loans are two different concepts. You need to be much informed about them before making an application. Financial institutions such as banks and lenders prefer giving out a loan that is asset backed. If you are a homeowner looking to borrow a loan, then a secured loan is the cheapest option for you. However, secured loans are accompanied by the risk of losing your property in case you fail to repay the loan on full amount within the specified time limit. We will take you through secured, and unsecured loans are giving you the details of each one of them.
It is also known as a homeowner loan. Secured loans are only available to individuals owning a home that can be used as security. Individuals qualifying for these loans can borrow an amount ranging from 5,000 US dollars to 125,000 US dollars. Terms and interest rates are set according to the personal circumstances and the amount of equity the borrower has on the property.
The advantage with secured loans is that they are available in large amounts than personal loans. Individuals having a bad credit history may have a secured loan as the cheapest option for them compared to the personal loans. Such individuals will be easier to qualify for these loans since the property acts as security. Periods for repaying the secured loans could be much extended, but the fixed monthly payments can simplify your repayment plan.
Unsecured loans are available to everyone having, at least, fair credit ratings. To qualify for this loan, you do not have to be a homeowner. Unsecured loans are offered by many banks and private lenders. Peer-to-peer companies also offer unsecured loans to interested parties through which you borrow from other individuals. With personal loans, you will be able to borrow anything that ranges from 1,000 US Dollars to 25,000 US Dollars.
Unsecured loans are the cheapest way for you to get a loan. You are given the flexibility to choose the time limit within which you will have cleared your debt. Most borrowers prefer making fixed payments that go for between one and five years.
You may also be given a payment holiday that may be of two or three months at the beginning of the agreement.
Besides the secured and unsecured loans, there are other options for you. The zero percent credit card can be a good option if you are looking forward to borrowing a small amount of money. You can be given an interest-free loan that goes up to 18 months.
To find a better deal between the secured and the unsecured loan, you need to consider the interest rates between the two.