A personal loan is a type of debt, usually provided by the bank or a financial service provider, which the borrower agrees to pay back with interest over a predetermined period of time. There are many variants of a personal loan, but they all fall into two categories secured and unsecured. Discussed below are the main differences between the two types of loans.
Secured Personal Loan
A secured personal loan is one that is tied to any of your properties. You will have to offer an asset that you own as collateral to get approved of the loan. The amount that you will be allowed to borrow will be based on the appraised value of that particular asset. The only disadvantage of this type of loan is that, should you default on a payment, that bank will be legally obliged to sell the collateral and use the proceeds to settle your outstanding balance. On the other hand, a secured personal loan is a better choice than an unsecured personal loan due to the following reasons
- Loan for more than 25,000. If you have an urgent need for a large amount of money, a secured personal loan can be the best solution. Unsecured loans can only offer between 5,000 and 25,000.
- Lower interest. Because this type of loan is secured against a property, the rate of interest it offers is lower. The repayment conditions are also easier to fulfil than those extended in unsecured personal loans.
- Quick and easy processing. Secured personal loans do not require as much documentation as unsecured personal loans do. Credit history may not be looked at during the approval.
Unsecured Personal Loan
An unsecured personal loan does not require any collateral you will not lose your property in the instance of delinquency. However, interest rates with unsecured personal loans are relatively high, thus it is recommended to compare the rates offered by different loan providers first before signing a contract with anyone of them. In addition, because the lender does not have anything to seize in case you fail to make repayments for the loan, it will base its decision on your credit history. This means that you need a good credit score before you get approved of an unsecured personal loan. There are also a number of paper works to accomplish in order for the loan to be released.
About the Author:
This article was brought to you by Simon. Simon has written many informative articles to help readers manage their personal finances. He is a content writer for personalloan.com.au.
