Whichever kind of loan it you prefer, these loans are grouped into two different categories—unsecured or secured loans.
A secured loan is a loan which involves some security in return of the loan. This security may be in the form of mortgaged home, insurance policy, or vehicle, etc. These types of loans are preferred by the lenders as they have the option to take complete ownership of the security, just in case, the borrower fails to repay the loan amount. Some of the common secured loans are home equity loans, mortgage loans, debt consolidation loans, and second mortgages.
Under this type of loan, the borrower transfer the ownership of security in favor of the lender for a definite (loan) period as per the terms and conditions of the loan agreement made between him and the lender. The borrower needs to pay interest apart from the principal on the loan amount and if he defaults in making the payment, the lender has full rights to seize the ownership and dispose the security to recover the loan amount from the borrower. If the borrower is making regular loan payments and the loan period is completed, he gets back his security.
Borrower needs to pay interest
The scarcely available resources at the disposal of the mankind coupled with his unlimited wants is the reason for the evolvement of a loan market section, that is now a critical and integral part of the world’s overall market economy. You can visit this link:https://www.thebalance.com/how-secured-loans-are-different-from-unsecured-loans-960032 to know more. As some of us are not able to fulfill our financial requirements, we are left with two options, either to drop the requirement for some time or take financial assistance from someone. The financial assistance may be in the form of business loan from financial institutions or from friends or relatives.
The growing competition in the market along with the emergence of new market players has resulted in these players offering cheap secured loans and fast secured loans these days. These types of loans (cheap secured loans and fast secured loans) allow the customers to have immediate monetary assistance in return of security. You should also visit our top article here. This is good news for the financial institution (lender) as well as the customer (borrower) as both of them get what they look for. The customer is able to get financial assistance and the institution is able to get customers as well as interest along with the principal amount. This is what keeps the things moving in the right direction in a growing economy.
There are loans that do not require any security and are consequently riskier for the lenders. They are riskier affairs for the lender as under these types of loans, lender is not in the possession of any kind of security. The lender offers the loan to the borrower on his request after verification of his past credit history and financial stability. The borrower has to pay interest to the lender apart from the principal amount. As no security is involved as well as these unsecured loan lenders are more likely to suffer their losses than the bad credit secured loan lender, their interest rate is greater in this case. Some of the best examples of these loans are personal loans and credit cards.