A borrower must always be aware of the kind of loan he/she is applying for before opting for it. A smart borrower will definitely be aware of the different varieties of loans available before deciding upon one which is most suitable for him or her.
There are basically two kinds of loans:
1. Secured loans
2. Unsecured loans
Secured personal loans:
Secured personal loans are the most common kind of loans opted for by borrowers. In case of such loans the borrower provides a collateral as a security to the lender. A collateral is anything which is valuable and which owned by the borrower. This could be some form of land or property, vehicle or even gold. Collateral reduces the risk of the lender because it makes it possible for the lender to recover the money in case the borrower is unable to repay the loan. Again, because the lender has something of value as security, relatively lower personal loan interest rate will be charged. The lender may also be willing to loan a high amount because he has some security which provides a sort of backup in case the borrower is unable to pay back the full loan amount.
Unsecured personal loans:
When the lender lends a borrower some money without any collateral or security at his own risk, such a loan is an unsecured personal loan. In case of an unsecured loan the lender charges a high interest rate because there is risk involved. If the borrower is unable to pay the loan amount back partially or totally then the lender’s loaned amount will not be recovered. This means that a lender takes more risk in case of providing an unsecured loan. So, naturally a high personal loan interest rate will be charged.
The main points of difference between these two types of loans are:
• In case of an unsecured loan the loan amount is usually smaller and limited, but in case of a secured loan the amount may be quite high as a collateral is provided.
• For a given amount to be borrowed, a very high personal loan interest rate will be charged in case of an unsecured loan as against a secured loan.
• From the point of view of the lender higher risk is involved in case of an unsecured loan.
One can either opt for a secured loan or an unsecured loan, depending on the type of security they have. A number of business men prefer to obtain secured loans to expand their business. They generally acquire the loan against gold or land as security.
There are basically two kinds of loans:
1. Secured loans
2. Unsecured loans
Secured personal loans:
Secured personal loans are the most common kind of loans opted for by borrowers. In case of such loans the borrower provides a collateral as a security to the lender. A collateral is anything which is valuable and which owned by the borrower. This could be some form of land or property, vehicle or even gold. Collateral reduces the risk of the lender because it makes it possible for the lender to recover the money in case the borrower is unable to repay the loan. Again, because the lender has something of value as security, relatively lower personal loan interest rate will be charged. The lender may also be willing to loan a high amount because he has some security which provides a sort of backup in case the borrower is unable to pay back the full loan amount.
Unsecured personal loans:
When the lender lends a borrower some money without any collateral or security at his own risk, such a loan is an unsecured personal loan. In case of an unsecured loan the lender charges a high interest rate because there is risk involved. If the borrower is unable to pay the loan amount back partially or totally then the lender’s loaned amount will not be recovered. This means that a lender takes more risk in case of providing an unsecured loan. So, naturally a high personal loan interest rate will be charged.
The main points of difference between these two types of loans are:
• In case of an unsecured loan the loan amount is usually smaller and limited, but in case of a secured loan the amount may be quite high as a collateral is provided.
• For a given amount to be borrowed, a very high personal loan interest rate will be charged in case of an unsecured loan as against a secured loan.
• From the point of view of the lender higher risk is involved in case of an unsecured loan.
One can either opt for a secured loan or an unsecured loan, depending on the type of security they have. A number of business men prefer to obtain secured loans to expand their business. They generally acquire the loan against gold or land as security.
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