If you have never applied for a loan, then there are great chances you not to know what the difference between secured and unsecured loans is. There are different types of loans and it is crucial for you to understand what they imply before making your decision.
When you borrow money from an individual or from a bank, it means that you are taking a loan. Some lenders offer you money only with the promise that you will pay the sum back. But there are also lenders that ask you to offer an asset as a security for the sum they provide you. These two distinctions make the difference between a secured loan and an unsecured one.
How secured loans are defined?
If you will apply for a secured loan, you will have to offer one of your assets, like your house as a security. If you need an auto loan, then the car will be the security asset, and if you need a mortgage loan then the house is the security asset. The asset is collateral for your loan; this means that the lender can reposes it, if you will not pay the money, as you have both agreed. When you will discuss with the lender they will offer you extra information on the conditions of your self employed homeowner loan. Self-employed individuals, contractors and pensioners are able to apply for this type of loan. Your personal circumstances are the ones that decide the sum you can borrow, the interest rate and the duration of the loan.
How unsecured loans are defined?
If you will opt for an unsecured loan, then you will not have to offer one of your assets as security. In this case, the lender is not allowed to seize your properties if you cannot pay the sum you borrowed. Student loans and personal loans are the most common examples of unsecured loans. When you will apply for this type of loan, the lender will check your credit history, and it will be approved, only if you prove to have a good credit history. The advantage is that you do not need an asset in order the lender to offer you the sum you need.
Should you choose a secured or unsecured loan?
The majority of people state that it is highly recommended to opt for a secured loan. Borrowers prefer this option, because they have an asset they can offer as security, but they do not have a good credit history. You will find easier to get this type of loan, because the lenders have low risks if they offer you the sum you ask for.
You will also have the benefit of getting a higher sum, than if you would get an unsecured loan. Make sure that you afford to pay the loan you get, because you may be thrilled by the idea that the sum is higher than you have expected. Do not forget to check what the monthly payment amount, repayment period and interest rate are. Actually, you should do the same even with unsecured loans.