Difference Between Secured Loans and Unsecured Loans

Secured Loans vs Unsecured Loans

Secured loans and unsecured loans are two types of loans that bear some differences between them in terms of their rules and regulations, processing and the like.

Secured loans are the loans for which you give some kind of guarantee to the financial institution that lends money regarding the repayment of the loans. Unsecured loan on the other hand is the loan offered to you on the basis of your credit rating that is supposed to be good to be eligible to get the loan.

The type of guarantee that you can give to the financial institution in the case of secured loans may be in the form of assets, car or any other vehicle, documents related to investments made in banks and stocks and the like. On the other hand business people who are not interested in providing their assets as guarantee usually opt for unsecured loan simply by virtue of their existing credit rating.

It is interesting to note that you need not give the assets to the lending institution to get your secured loan sanctioned. The institution believes that it would suffice you own the assets since in case you fail to repay the loan they can initiate action in terms of selling or seizing the assets to compensate the losses. This is the big difference between the two types of loans.

There are some advantages of secured loans in the sense that you get a longer tenure for the repayment of the loans. This is probably the reason why many people would like to opt for secured loans rather than unsecured loans. In the unsecured loans the repayment tenure is usually shorter when compared to the secured loans.

Another advantage of getting secured loans is that they are characterized by lower interest rates. Methods of repayment also are characterized by flexibility in the case of secured loans.

On the other hand unsecured loans are characterized by higher interest rates. This is possibly because of the fact that is normally given by the financial institution without asking for any sort of guarantee.

On the contrary you cannot expect flexibility and options in the methods of repayment of the loans in the case of the unsecured loans. Secured loans are given on the basis of your possession of assets whereas unsecured loans are given on the basis of faith and trust.