A secured loan is a loan that requires a security deposit or ’collateral’. For the most part this will be property - a borrower’s home, for example. This type of loan offers less risk to the lender and as such they are willing to offer better terms. In addition, secured loans are much easier to obtain.
Secured loans are often granted in higher amounts to correspond with the value of the borrower’s deposit, since the lender is offered the security that costs can be recouped, if need be.
Another benefit of a secured loan is that they tend to come with longer loan terms at better interest rates. This translates into smaller monthly payments for the borrower.
Unsecured loans are loans that are not backed with a deposit and as such they require you to have an impeccable credit and financial history (unlike secured loans). It is very difficult to get an unsecured loan, not least with the credit crunch, as they are perceived by lenders to be risky.
Both lending options should be considered, but it really boils down to your financial situation. |
