Credit has grown to play a major role in the world. The reality nowadays is that most people’s lifestyles are funded in part by credit. Cost of living has skyrocketed and the value of money has plummeted, leaving most people with no other choice than to take out lines of credit in some form or the other. For instance, buying a house or a car, or even having your wedding - these are simply not expenses that can be paid outright.
There are many ways you can take out loans in various forms - personal loans, credit cards, payday loans, student loans. However, all these loans can be segregated into two main categories: secured loans and unsecured loans.
What is the difference between Secured Loans and Unsecured Loans?
A secured loan usually requires some form of collateral pledged by the borrower so that the lender can be assured of repayment. In the event of non-repayment by the borrower, the lender will take ownership of the collateral. The collateral that is usually put forward for secured loans tends to be property, homes and cars when it comes to leases. When the lender takes ownership of your secured loan collateral, it is known as “repossession” and it is a very serious thing to have on your credit history with the potential to affect all major financial services available to you in future. Some examples of secured loans include mortgages and leases.
On the other hand, unsecured loans are lines of credit that require little to no collateral in order to get the loan. The lender will take a look at your credit history and income records in order to decide eligibility and trustworthiness. You could even say that unsecured loans are based on your personal character, lifestyle and social standing. Some examples of unsecured loans include credit cards, payday loans and online loans, such as those provided by services providers like OnCredit.
It can be said that in unsecured loans, the burden and risk is put on the lender’s shoulder whereas in secured loans, the borrower is at risk in case they cannot make the payments on time.
Are Secured Loans or Unsecured Loans Better?
Secured loans tend to have an overall lengthier process. Application for a secured loan (like a lease or mortgage) requires extensive documentation and it generally takes many days for the lender to review your secured loan application and deem you eligible (on ineligible). Secured loans tend to have lower interest rates than unsecured loans (but not always) as the burden of repayment falls entirely on the borrower’s shoulders.
Unsecured loans (like payday loans or online loans) tend to be far quicker, and are usually your best bet when you are in urgent need of cash. Application requires little to no documentation (often, just a photo of yourself and your National Identity Card) and you can have the cash in your hand within just a few hours or at least within the day. Unsecured loans are generally considered to have higher interest rates or service fees but this is not always the case. Even though the risk of unsecured loans is on the lender, depending on your personal profile, you might be able to find an unsecured loan with attractive charges. Usually online loans nowadays have very reasonable terms and conditions and are rapidly growing in popularity.
As with anything in the world, there are pros and cons to both secured loans and unsecured loans. Depending on your requirement and current financial condition, select whichever one you feel is most suitable for you. You can view this video for additional information - https://www.youtube.com/watch?v=k395u5tIQpY.