Secured V/S Unsecured Loans - Know the Differences

Financial emergency can be faced by any person at any period of time. If there is no hope manage cash requirement from your savings or with the help of friends or families then finally people move towards professional lenders. There are several financial institutes who offer loans for short term or long term cash requirements. While borrowing cash through lending agencies, one should be careful about the available options. There are several options available for individuals to borrow cash this option as per their financial situation and requirements. Basically there are two broad loan categories ? Secured and unsecured loans. Both options have several differences which also help to determine best loan approach available for you.

Secured debts:

Secured loan options are suitable only for those who have assets to use as security against the borrowed amount. These loans are related to asset value considered as collateral upon using as security in loans. Using assets as security means lender have right to repose the property if borrower fails to pay back the amount in time. If lender take control over property because you fail to keep your promise of loan repayment then the asset will be sold. In case selling price of asset is not enough to cover the repayment then lender may pursue for remaining payments. Home mortgage loans or logbook loans are examples of secured loans.

Mortgage loans are secured against the home equity value and logbook loans are secured against the car value. Lender can repose the property in case of non repayment. However, there are some legal terms which must be followed before repossessing the property.

Unsecured debts:

Unsecured debts do not include any type of security to approve loan request of applicant. These loans are free from any collateral security. Thus, if you fail to make your payments then also lenders do not have any right to take control over your assets. However, you may take other actions to get back their amount. They may hire debt collector for collections. They may sue if formal option fails and ask court to garnish your wages, take control over asset etc. It may also affect your credit rating. They will report it to credit bureau which further affects your borrowing ability. Credit card debts are common form of unsecured debts. Other unsecured loans are payday loans, student loans, court-ordered child support and medical bills.

Which one to select:

Secured loans may risk your property but these loans are available at better rate of interest. If you are sure that you will keep your payments according to the terms and you have secured income sources then it can be a better option to pay off your bills. It can be difficult to manage your payments in long term and in that case, you may lose your ownership over the property.

Unsecured debts can be better choice if you are making extra payments to cover other debts. These loans are basically available with higher rate of interest. It is necessary to keep minimum payments into the account to avoid legal actions.

Source: http://www.shvoong.com/business-management/2343223-secured-unsecured-loans-know-differences/

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