A secured loan is a loan given out by a financial institution wherein an asset is used as collateral or security for the loan. For example, you can use your house, gold, etc., to avail a loan amount that corresponds to the asset’s value. In the case of a secured loan, the bank or financial institution that is dispensing the loan will hold on to the ownership deed of the asset until the loan is paid off.
Examples of secured loans
Unsecured loans, like the name suggests, is a loan that is not secured by a collateral such as land, gold, etc. These loans are comparatively riskier to a lender and therefore associated with a high interest rate. When a lender releases an unsecured loan, he does so after evaluating your financial status and assessing whether or not you are capable of repaying your loan.
Examples of unsecured loans
Apart from being easier to obtain, the contract on a secured loan is usually more favourable for a borrower than an unsecured loan. Often times, the repayment periods are a lot longer, the interest rates are lesser, and borrowing limits are higher. All these factors imply that opting for a secured loan is more beneficial for a borrower.
Ever lenders prefer secured loans over unsecured loans as they are less risker to dispense. Since borrowers have to provide an asset as collateral to obtain a secured loan, there is a degree of certitude in the mind of the lender. The lender is assured to get back the money loaned out, and even if he doesn’t the asset can be used to recover the loss of non-payment.
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