When borrowing money, it is important you get familiar with the various loans being offered. Each have their own unique characteristics that make them suitable to different situations. Therefore, you must first evaluate your own finances to see which will serve you best. You should also check the requirements to verify that you pass the criteria.
There are two broad types of loans: secured and unsecured. The first refers to the kind that requires collateral from the borrower. This has to be an asset that could roughly cover the amount being borrowed in case of non-payment. The second can be availed without any such security. Many prefer unsecured loans over secured loans for the following reasons:
Even honest borrowers who have every intention of paying back the lender can feel discomfort at the thought of possibly losing their home, their car, or other valuable assets should fortune not favor them. For example, those who are borrowing money for their business might lose their bet and have a hard time paying back their loan. Some lenders are lenient while others are quick to seize the property. Their family might not have a roof over their heads because of their decision. With unsecured loans, there could be added fees and higher interest as penalties which are less harsh in comparison.
Secured loans are typically large with many in the hundreds of thousands and beyond. They can be repaid over a period of several years or even decades. Since it’s such a long-term commitment, the lender needs to make sure that the borrower has the financial means to fulfill his end of the bargain. Things like credit history, career prospects, assets, and liabilities will have to be checked. With unsecured loans, the amounts are lower and repayment is faster. Some lenders don’t even check credit history anymore. They are more concerned about current income and short-term job stability.
Many of the lenders offering loans without security are flexible when it comes to their payment terms. Borrowers can pay more when they get a windfall to finish repayment. They can also ask for the term to be stretched if they are having a hard time keeping up with the original schedule. Of course, not all lenders are the same so make sure that you do your research to find one with a good reputation and countless satisfied clients.