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Secured loans vs. unsecured personal loans – A comparison

Loans can be mainly divided into two major types – secured and unsecured. Depending upon your situation and need, you will have to decide as to which loan option you will go for. A secured loan is a loan option in which you will have to pledge some of your assets as collateral. On the other land, unsecured loans are mainly personal loans, which do not require any kind of collateral.

Get to know about secured loans in details

You must have definitely heard of the option of secured loans. It is one of the easiest ways to get a large amount of loans for bad credit from a bank or a financial institution. In this option, in order to get a loan, you will have to pledge any of your assets as collateral. This can be your home, your car or your life insurance policy. There will be an interest attached to the loan and you will have to make monthly payments toward the loan. In case you cannot pay off the loan in full, the lender will have the rights to sell off your assets and recover his or her dues in full. Thus, in case of a secured loan, you always have the fear of losing your collateral.

Getting a secured loan will depend upon your financial and credit situation. Unless you have a good credit, the lender will not consider you for the loan. Moreover, the lender will check whether or not you have 2 years of employment history. Apart from this, the lender will take into consideration your debt to income ratio.

Knowing unsecured personal loans in details

Unsecured personal loans are loans which do not require any kind of collateral. You will apply for the loan and you can get it. The lender will give you the loan by trusting the fact that you will pay off the loan in full. Many a times, the lenders will not even check your financial and credit situation to give you a loan. As there is no collateral involved in the process, the rate of interest charged on the loan will be extremely high. This makes unsecured personal loans a costly option compared to the secured loans. However, as there is no asset involved in the process, the lender will not be able to sell anything to recover the dues. In such a situation, he may charge off the loan and assign it to a collection agency.

Unsecured personal loans can be quite risky if you cannot pay it off on time. Like default on other loan options, the unsecured personal loans will have a severe negative impact on your credit situation. Apart from this, the late fees and charges attached to this loan in case of default can make it further costlier. Thus, it is always suggested that you avoid this loan option. Many people, thus, prefer taking out a secured loan.

Now that you know the difference between secured and unsecured personal loans, it will be easier for you to decide as to which loan option you will go for. You should choose the unsecured personal loans option depending upon your needs.

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