While a personal loan is divided into secured and unsecured loan, it is loosely referred to as the unsecured loan. A secured loan is often called the home equity loan. With unsecured loans, there is no need to used property as collateral for the loan.
With secured loans, the interest rates are relatively lower. This is owing to the fact that there is a security in place for these kinds of loans. A repayment default does not hurt the lender that much. It is within his rights to sell the collateral and get the money back. Unsecured loans warrant slightly elevated rates as compared to the secured option. Still, the rates are generally lower than credit cards. Personal loans commonly come with a fixed interest rate.
For those borrowers owning a home, a secured personal loan would a good option. With this loan option, there is the option of borrowing a greater amount apart from, of course, the lower interest rates. The repayment term is also quite long. For borrowers who do not own a home – tenants and students commonly – an unsecured loan is the only feasible option. However, this loan is not restricted to non-homeowners. If the borrower has already used a lot of his home equity, he can easily go for unsecured loans.
The advantages with personal loans, secured and unsecured, are several. With secured loans, one gets lower interest rates, a longer repayment term and a bigger amount. However, on the flip side, there is a danger that the borrower can lose the house if he does not make the repayments on time. Secured loans should ideally be availed by people who are financially sound.
The benefits with unsecured loans are that one can get the amount approved quickly, and they generally come with greater flexibility. Also, there is no real threat of repossession to one’s property. Still, lenders can take the legal route to recover the money, should a borrower default on his payments.
About The Author:
The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his master in Business Administration and is currently assisting Go4ukloans as a finance specialist.
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