An unsecure loan is a loan that does not require a type of collateral but rather depends on the customer’s creditworthiness. A secure loan requires the opposite, which means that customer needs to give their property or car as collateral. Read on to understand more about the differences between an unsecure loan and a secure loan.
Financial institutions give unsecure loans considering the borrower’s creditworthiness, they determine a person’s creditworthiness depending on their past money transactions and credit score. A high credit score can give you a high creditworthiness. They also may consider other factors such as employment status, income, age, financial obligations and the ability to pay back debt. Unsecure loans usually include credit cards, personal loan, and student loan.
The creditworthiness of an individual also helps determine the terms and conditions of the loan such as the interest rate. The interest rate also depends on the financial institution, as certain financial institutions may offer a trusted personal loan low interest rate or a low interest for student loans as well, there also may be institutions that have high interest rates since unsecure loans are not guaranteed by any type of property making it riskier for the banks.
Financial institutions give loans when the borrower has certain assets that can be considered collateral for the amount being borrowed, such as; property, stock and bonds as well, making the debt secure with the collateral, therefore if the borrower is unable to pay off the loan within the given period, the financial institutions will take the asset used as collateral. There are different methods, which come under a secure debt; these include a mortgage, car loans, consumer loans, and pawn shops.
Secure loans are said to be riskier for the borrower as there is a chance that they may lose the property or any other asset they have put down as collateral if they don’t repay their debts on time. But there are advantages that come with secure loans and these are that it allows the borrower to get higher loan values, financial institutions will not focus on creditworthiness, lower interest rate, and they will be more flexible with their terms as there is collateral involved.
After reading the above you will have enough and more knowledge on the different advantages and disadvantages that you will face when considering taking either a secure loan or an unsecured loan. You will also find information that will help you understand in detail what you need to require in order attaining either one of these loans.