We all face financial problems at some point in our lives. You don’t always have enough money to buy or do what you want. That is when people move to loans. Loans are a savior when you need to get immediate help with funds. Today you can avail loan for several things.
A loan is when you commit to repay money borrowed from a lender for a predetermined sum within a specified timeframe. The creditor lends you money at a fixed interest rate. You repay the borrowed amount plus interest in installments as agreed between the two parties.
Loans typically fall into two main categories: secured loans and unsecured loans. Banks provide both of these types of loans.
Secured loans
A secured loan is accompanied by collateral, like your own financial assets, such as a home or a car, that can be used to repay the lender if you fail to repay the loan. Lenders accept collateral for a secured loan to encourage borrowers to repay the loan on time. Since losing your home or car is a real possibility, it is a solid incentive to repay the loan on time and prevent repossession or foreclosure. In these loans, the lender will typically review and evaluate the collateral to determine its present value before approving the loan. Because collateral is involved, secured loans often have lower interest rates than unsecured loans.
Types of secured loans
- Home loan
- Gold loans
- Loan against property
- Loans against insurance policies
- Loans against mutual funds and shares
- Loans against fixed deposits
Unsecured loans
To acquire an unsecured loan, you do not need to offer collateral. Instead, the lender issues it to you based on your creditworthiness as a borrower. As a result, having an excellent credit score is required for unsecured loan approval. In addition, unsecured loans typically have a higher interest rate to reflect the lender’s additional risk. However, the unsecured loan is the most flexible loan as it does not require collateral. Because unsecured loans require higher credit scores, lenders may sometimes allow loan applicants with poor credit to provide a cosigner. A cosigner assumes the legal obligation to repay a debt if the borrower fails to do so.
Types of unsecured loans
- Personal loan
- Short-term business loans
- Education loan
- Vehicle loan
- Travel loan
Which type of loan is the perfect choice for you, whether secured or unsecured loan?
There is no definitive answer to the question of which loan is the best. It differs from person to person. Those who do not want to risk putting an asset at risk and are confident in their ability to repay can opt for a smaller unsecured loan. The bottom line is that a good credit score is required for both; in both cases, the borrower may lose their assets if they default on the loan. Sometimes the decision between a secured and an unsecured loan is not entirely yours. If you don’t have a credit record or score, it’s best to begin with, a secured credit card.
You can quickly get loan of your choice online via net banking or mobile banking apps.