When you are in need of money for any type of emergency, you look to borrow money from a bank or a lender. While taking the loan, there are certain conditions attached to the repayments. These conditions define what type of loan it is. Comparatively, there are two types of personal loans you can take – Secured and Unsecured loans. Understanding these becomes crucial to assess what condition fits your loan requirements best.
Secured LoansSecured loan, as defined by the term, is a type of loan that is backed by, or taken against, an asset. The asset is the security for the loan; that means if you don’t repay the loan, then the bank or the lender can repossess the asset which they sell to pay off the loan. The lender holds the title or the deed, until you have repaid the loan in full. Examples:
- Auto Loan
- Business Loan
- Home Equity Line Of Credit
Advantages Of Secured Loans
- By using security, you become more eligible to get the loan.
- The loan amount could be higher, as you are offering security.
- Repaying such types of loans timely helps you to improve your credit score.
Unsecured LoansWhen you have not tied any of your assets as security on a loan, then it is referred to as an unsecured loan. This way, the lender cannot seize any of your property. When you are looking to get an unsecured loan, the amount you may get may be smaller in comparison to secured loans, as the lender or the bank does not have any security to recover the money in case you default. Examples:
- Personal Loan
- Student Loan
- Cash Loan
- Funds for Car Repair & Registration
- Home Improvement Loan
- Personal Line Of Credit
Advantages Of Unsecured Loans
- When you are not attaching any asset there may be less paperwork.
- You can get a loan without having a registered asset.
- Increases your eligibility for another small personal or cash loan upon completion of your loan.