Secured vs Unsecured Loans

 Differences between Secured Loans and Unsecured Loans

Understanding facts about loans makes it easier for potential borrowers to select the most appropriate loan that will meet their needs and not overwhelm them when it comes to repayment. Loans that are approved from lending institutions are placed in two categories and they include secured as well as unsecured loans. Either of these loans is provided to borrowers to help them through a time of financial constraints and help them regain their footing in terms of finances.  However, having the knowledge of the about the two loans in detail will go a long way in helping a borrower to make a decision from an informed point of view.

Secured loans are those that need are those that need collateral from the borrower so as to be able to process a loan for them. The type of collateral that is needed may differ from one lending institution to another but is usually in the form of an asset that is owned by the borrower. Most times this type of security is needed when the financial institution cannot be sure of how credit worthy the borrower is as they make the application. The credit rating of the individual making the loan application plays a big role in the approval process of the secure loan. The asset that is given to the lending institution to be able to access secured loans is a guarantee that in case of default in payments they can seize it and use it to recover the money that was borrowed.

On the other hand are unsecured loans which from their name indicate that they do not need any collateral for them to be approved by a lending institution. These loans do not bother with an individual’s credit rating and do not even perform a credit check before approving the loan and making it available to the borrower. The requirements needed are minimal and include the need for steady income and an account that is active so that the loan can be deposited into it. Furthermore, these unsecured loans come in a variety to meet the needs of borrowers that may not have quite a good credit rating and are unable to access regular loans. In case of default in payments, the lending institution relies on the methods that had been put up between them and the borower when the loan was approved.