Secured Loans Or Non-Secured Loans?

by Ricky Ponting

Lending and borrowing are two of the oldest transactions in the history of humans. Lending is a simple transaction in which a person (lender) lends some money to another person (borrower) on certain terms and conditions. These terms include the payback duration and the rate of interest applicable on that loan. The concept of giving loans is same even in current times but the procedure of lending has become a bit more complex due to rules and regulations involved in this process.

Basically, there are two types of loans available in market today. One is called secured loan and the other is called unsecured loan or non-secured loan. Secured loan is something in which the lender is assured to getting his money back since he keeps some asset of the borrower as collateral. This asset can be his home, car, jewelry or any other tangible and precious thing.

This way, the lender has low risk associated with the loan since he can always recover the money lent to the borrower in case the borrower defaults on his payment. Since the risk of loan is low, the loan is also cheap and interest rates are low.

The other type of loan is called unsecured loan or non-secured loan. In this type of loan, the lender lends money to the borrower based on his credit history and his face value. There is no collateral which is deposited with the lender. Since the loan is risky for the lender, therefore the interest rates are high in these types of loans. The interest rate and other terms can be very strict or easy depending upon the credit history of the borrower. If the borrower has a track record of making payments on time for all his other loans and bills, then he may get the loan cheaply.

Which loan is more suitable for you would depend on your need and past credit history? In case you have a good credit standing, you should go with an unsecured loan since you won’t have to provide any kind of collateral. If the credit history is not so good due to some reason, the secured loan is a better option.

About the Author:

The author is an expert on loans and writes articles on different types of loans including secured loans and non secured loans.