Secured,Unsecured,That,The,Que finance, share, loan Secured Or Unsecured: Thats The Question!
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When you are looking for finance and you dont know exactly which loan would best suit your needs, the first question that may arise is whether you should apply for a secured loan or for an unsecured loan. Each loan type has different loan terms and requirements and different advantages but also drawbacks that you need to consider prior to applying.When analyzing secured and unsecured loans you need to understand the nature of collateral and its consequences. The different loan types deal with the risk on the financial transaction in diverse ways and that is the key to understanding the distinctiveness of secured and unsecured personal loans.Nature Of CollateralCollateral constitutes a legal guarantee binding an asset to a certain debt that is usually a loan but it can also be a line of credit. This binding protects the lender by guaranteeing that in the event of default, the property can be sold in order to obtain the funds needed to cancel the money owed. The legal process that this legal binding entitles the lender to, is known as repossession and is extremely rapid.Thus, when present, collateral greatly reduces the risk involved in the financial transaction for the lender and thus increases the chances of approval for the borrower. Also, the loan terms on a secured loan are more advantageous than on unsecured loans because the risk determines how high the interest rate is as well as the extension of the repayment schedule and the amount of money that can be borrowed.Risk Management On Secured And Unsecured LoansWhen it comes to secured loans, the risk implied in the financial transaction is compensated by the use of collateral which acts as a guarantee of repayment. Thus, the lender, knowing that he will be able to recover his money one way or another can provide the borrower some ease as regards to the requirements for approval.But on unsecured loans, there is no collateral compensating for the risk and thus, the borrowers credit score and history are the only guarantees of repayment which means that repayment is only based on personal characteristics of the applicant or applicants. Thus, the loan terms and requirements for approval will vary according to what the borrowers credit report shows.ConclusionThere is no simple answer to the question of whether you should apply for a secured or unsecured loan. First of all, you need to verify whether you can apply for both. Only if you qualify for both secured and unsecured loans you can begin to consider which one is best for you. Thus, youll need to check that you have enough equity for a secured loan and that you meet the credit and income requirements needed for an unsecured loan approval.Only then, youll begin to consider whether you are willing to wait all the time it takes to get approved for a secured loan or if you are in a hurry and thus should apply for an unsecured loan. Also, youll need to consider how much money you need and whether you can obtain that with an unsecured loan or youll have to resort to secured lending.
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