Difference Between Secured Loans and Unsecured Loans

Difference Between Secured Loans and Unsecured Loans

Difference Between Secured Loans and Unsecured Loans - Information About Secured LoansSecured loans are the loans in which collateral or security is provided by the borrower against the loan amount.

In case, borrower does not repay the loan amount, lender can take possession of the collateral offered and can sell the same for realizing the outstanding loan amount. Secured loans are considered as good for the lenders as well as for the borrowers in comparison to unsecured loans.

By offering secured loans, risk of a lender is greatly reduced. Either the borrower shall repay the loan amount as agreed or the lender has the option of selling the security offered for squaring the loan amount. Security in most of the cases is the asset bought through the loan amount.

For example, if a person buys a home or a car through the loan amount, same shall be held as security. Though recovering dues through sale of security is a tedious process and involves many legal issues, lenders at least have the hope of recovering their money, unlike in defaulted unsecured loans.

Non performing assets of lenders are thus reduced and they are able to maintain good rating.Secured loans are favorable for borrowers too for many reasons. First of all, interest charged on secured loans is lower than the interest charged on unsecured loans.

In some cases, this interest rate difference can be quite substantial. With low interest rate, monthly obligation on borrower decreases and he is left with more disposable income to enjoy with his family. Other reason for secured loans being favorable for the borrower is the increased loan amount.

Lenders do not mind reducing the margin requirements in case of secured loans. Even some lenders agree to offer 100% loans, which is not possible in case of unsecured loans. With low or no margin requirements, it becomes easily possible for the borrower to fulfill his dream.

Apart from this, lenders also offer longer repayment periods to the borrower in case of secured loans. Longer repayment term combined with low interest rate results in low monthly installments. These installments are easily affordable by the borrower and his chances of defaulting on loan repayment decreases. By maintaining the repayment schedule, borrower is able to have a good credit rating, which is very important.

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