Feel the need to borrow money? Perhaps you need to borrow money to pay off some bill, credit card or tuition fee. Maybe you even need to take out a loan to pay off your house or add to your car payments. Whatever the case might be, a lender is one person, or rather a middleman that comes in handy when applying for a loan. A lender will borrow your money against your word to pay it back. He might even ask you to use an asset as collateral to ensure the loan’s security. While you might not know it yet. This simple description is a distinction between secured and unsecured loans, one that you need to be aware of.
When applying for a loan, it is important to consider all your options, as well as what you should do in the event of something going wrong.
Secured loans explained
Secured loans are those that are backed by an asset such as a house or car, in case you cannot pay back the loan or your debt. The asset you present the lender with is thus a collateral piece, in exchange for a loan. If the loan is not paid according to the agreement set up between you and the lender, the collateral can be repossessed by the lender.
Even when lenders repossess the property, when it comes to defaulted secured loans, you could still be left owing money on the loan. This is a great option if you need your debt to be paid off hassle-free.
Unsecured loans explained
An unsecured loan is a complete opposite than secured loans. It is not tied to one’s assets. The lender also can’t take either your property or possessions. Two very good and popular examples of these loans are both student loans and tied loans. These are not necessarily tied to an asset for the lender to take if one has a default on any of their payments.
This type of loan is much easier to operate are more preferred as it doesn’t put your possessions at risk. If you have a good credit history and a steady income, you can qualify for such a loan.
The only negative factor regarding this type of loan is that the amount lent and owed is much smaller. This is because no collateral can be approved.
Credit reporting with secured and unsecured loans
With both loans, lenders can check whether the individual taking out the loan, can be notified and checked by the lender him/herself. If payments are not paid on the dates provided by the lender, repossession and foreclosure are sure to be implemented.