Secured and unsecured loans difference

Sourcing finance through loans is a decision organisations and individuals make based on their need as well as other factors such as amount available, repayment period, interest rates etc.There are also different types of credit which can be secured by clients but these loans can broadly be categorised as unsecured and secured loans. Both secured and unsecured credit come with their own contradictory characteristics.

Secured credit is a conventional modality of borrowing money and it has been a practice for many years with people using land and gold to get loans.Unsecured loans are a newer version of loan alterantives.This therefore drives the point home that secured credit is finance offered against an asset as security or collateral. Unsecured finance is offered without any demand collateral.The fact that there is no security offered in unsecured loans means that they carry higher interest rates to cushion against any possible losses, while secured loans carry minimum interest rates.The amount of attention paid to the credit history also differs with these loans, collateral backing in secured loans reduces the amount of attention given to credit history while in unsecured loans more scrutiny is given to credit history to mitigate against loss.

The other contradiction worth considering is the fact that secured loans allow a borrower to get a loan on much favourable terms as compared to an unsecured loan. Many lenders may allow the borrower to take a desired time period of loan repayment on a secured credit.Term of repayment can be extended which in turn will demand the borrower to pay higher interest rates.

The above are the differences and contradictions between secured and unsecured loans.

Categories: Loans