Secured and Unsecured Loans

In the second part I will discuss about Secured Loan and Unsecured Loan. The word "Unsecured" here does not mean unsafe, but without security. For more in let's compare these two types of loans from the point of understanding it first.

Secured Loan is one way of using a credit-value assets such as homes, cars, etc., as collateral for the loan, which we proposed and of course the loan, which we proposed should not be higher than the price that we mortgaged assets. The system works on this type of loan is, that when a borrower cannot cover the proposed loan in the collateral pledged will be taken by the borrower in exchange for covering the amount of the proposed loan before. Therefore, do not ever borrow if you not sure could return, or you will be seized assets instead.

To make things more clearly, I love this example:

- Your home mortgaged certificate to borrow money in the bank.

- Buying a new car on credit, so if it can not make the repayments then the car will be taken by the lender.

Secured vs. Unsecured Loans, Unsecured Loan to do this type of loan you do not need to use your assets, because these loans are given based on a survey of income and your expenses, usually seen from your credit history. The greater your income and electrical loads then likely you will obtain a loan that great anyway. Because there are no guarantees in this loan then the interest charged was also relatively large because the borrower does not have any guarantee if we do not pay the loan. When you cannot pay the debt then the borrower will sue you through the legal channels.

Here is an example of unsecured loans:

• Personal loans are the most common form of unsecured loan, which is referred to as a loan all purposes, they are ideal to buy products that you do not have ready liquidity.

• Card Credit card loans are the most flexible form of short-term loans with easy repayment options.

• Unsecured Business Loans, as the name describes is a type of loan that does not require collateral. It is usually at a higher interest rate and taken to tenor relatively smaller.

• Bank Overdraft also a form by which you can avail unsecured financing from your bank for your business.

(Source: http://talkaboutloan.blogspot.in/2013/07/loan-type-part-2-secured-and-unsecured.html}

Secured vs. Unsecured Loans

Secured vs. Unsecured Loans

There are two basic categories that most loan types fall into – Secured and Unsecured.

Secured Loan:

Secured loans are those loans that are protected by an asset or collateral of some sort. The item purchased, such as a home or a car, can be used as collateral, and a lien is placed on such item. The finance company or bank will hold the deed or title until the loan has been paid in full, including interest and all applicable fees. Other items such as stocks, bonds, or personal property can be put up to secure a loan as well.

Secured loans are usually the best (and only) way to obtain large amounts of money. A lender is not likely to loan a large amount with assurance that the money will be repaid. Putting your home or other property on the line is a fairly safe guarantee that you will do everything in your power to repay the loan.

Secured loans are not just for new purchases either. Secured loans can also be home equity loans or home equity lines of credit. Such loans are based on the amount of home equity, which is simply the current market value of your home minus the amount still owed. Your home is used as collateral and failure to make timely payments could result in losing your home.

Secured vs. Unsecured Loans: usually offer lower rates, higher borrowing limits and longer repayment terms than unsecured loans. As the term implies, a secured loan means you are providing "security" that your loan will be repaid according to the agreed terms and conditions. It's important to remember, if you are unable to repay a secured loan, the lender has recourse to the collateral you have pledged and may be able to sell it to pay off the loan.

Examples of Secured Loans:

·        Mortgage

·        Home Equity Line of Credit

·        Auto Loan (New and Used)

·        Boat Loan

·        Recreational Vehicle Loan

Unsecured Loan:

On the other hand, unsecured loans are the opposite of secured loans and include things like credit card purchases, education loans, or personal (signature) loans. Lenders take more of a risk by making such a loan, with no property or assets to recover in case of default, which is why the interest rates are considerably higher. If you have been turned down for unsecured credit, you may still be able to obtain secured loans, as long as you have something of value or if the purchase you wish to make can be used as collateral.

When you apply for a loan that is unsecured, the lender believes that you can repay the loan on the basis of your financial resources. You will be judged based on the five (5) C's of credit -- character, capacity, capital, collateral, and conditions – these are all criteria used to assess a borrower's creditworthiness. Character, capacity, capital, and collateral refer to the borrower's willingness and ability to repay the debt. Conditions include the borrower's situation as well as general economic factors.

Examples of Unsecured Loans:

·        Credit Cards

·        Personal (Signature) Loans

·        Personal Lines of Credit

·        Student Loans (note that tax returns can be garnished to repay delinquent student loans)

·        Some Home Improvement Loans

{Source: http://www.greenpath.com/resources-tools/financial-library/loan-types/secured-vs-unsecured-loans}