Choosing Between Secured and Unsecured Loans
They say that all men are born equal, but this is not true when it comes to finances. The fact is that a person's inherited family background, responsibilities, circumstances, and other factors, shore up and determine one's financial status. When there is a gross disparity between the income and the expenses in a person's life, they are forced to prioritize and there are circumstances when they are forced to borrow.
There are certain other purposes for which also people go in for loans. For instance, people who want to extend their homes, who want to go on an adventurous holiday tour, or who want to judiciously amalgamate all their loans into a single liability - all these people also shop around for loans.
There are two types of loans. One is secured and the other - unsecured. In a secured loan, the borrower is expected to give an asset as a collateral for the loan. The asset may be a home, a car, stocks or any other high-value item. If there is a failure in repayment of the loan, the lender has the right to sell the asset and that's how they will recover their dues.
Secured loans are safe for the lender because they have the asset as collateral for backing up the money lent. For the borrower, the advantages are that the rate of interest is cheap, the amount of money got as a loan is relatively high and the repayment period is also reasonably long. Even if the borrower has a poor track-record for credits, the lender may decide to approve the loan since the asset is there as a back-up.
In the case of an unsecured loan, the lender does not insist on any asset to back up the loan. He or she considers the track-record of the borrower and assess his credit-worthiness. Based on this assessment, the amount of the loan and the rates of interest are determined. But the lender will always have a recovery plan to recover the loan in case of default by the borrower. This recovery plan could be asking for a guarantor to sign the required documents to the effect that in case of defaults by the borrower, the guarantor is liable to repay the loan. In the case of an unsecured loan - the amount lent is also much less than in the case of a secured loan, and the repayment period will also be shorter.
The borrower need not possess any asset for taking the loan in the case of an unsecured loan. Hence there is no fear of losing any asset in case he or she fails to repay, though they may face a civil suit for this failure. They can plan their income and expenses in such a manner so that they pay back the loan smoothly because of the short duration of repayment in the case of an unsecured loan.
Sometimes, loans are raised to kick-start the borrower's business or for expansion of business. Other loans must be treated as temporary bail-outs. They are only quick-fix solutions. Borrowers should not get swayed by the availability of loans and become habitual borrowers.
Loans should be the last resort for people because usually lenders are very strict. Only in compelling circumstances, one should go in for loans. But if such a dire necessity arises, one should have perfect and unfailing plans to repay the loans. - 23217
There are certain other purposes for which also people go in for loans. For instance, people who want to extend their homes, who want to go on an adventurous holiday tour, or who want to judiciously amalgamate all their loans into a single liability - all these people also shop around for loans.
There are two types of loans. One is secured and the other - unsecured. In a secured loan, the borrower is expected to give an asset as a collateral for the loan. The asset may be a home, a car, stocks or any other high-value item. If there is a failure in repayment of the loan, the lender has the right to sell the asset and that's how they will recover their dues.
Secured loans are safe for the lender because they have the asset as collateral for backing up the money lent. For the borrower, the advantages are that the rate of interest is cheap, the amount of money got as a loan is relatively high and the repayment period is also reasonably long. Even if the borrower has a poor track-record for credits, the lender may decide to approve the loan since the asset is there as a back-up.
In the case of an unsecured loan, the lender does not insist on any asset to back up the loan. He or she considers the track-record of the borrower and assess his credit-worthiness. Based on this assessment, the amount of the loan and the rates of interest are determined. But the lender will always have a recovery plan to recover the loan in case of default by the borrower. This recovery plan could be asking for a guarantor to sign the required documents to the effect that in case of defaults by the borrower, the guarantor is liable to repay the loan. In the case of an unsecured loan - the amount lent is also much less than in the case of a secured loan, and the repayment period will also be shorter.
The borrower need not possess any asset for taking the loan in the case of an unsecured loan. Hence there is no fear of losing any asset in case he or she fails to repay, though they may face a civil suit for this failure. They can plan their income and expenses in such a manner so that they pay back the loan smoothly because of the short duration of repayment in the case of an unsecured loan.
Sometimes, loans are raised to kick-start the borrower's business or for expansion of business. Other loans must be treated as temporary bail-outs. They are only quick-fix solutions. Borrowers should not get swayed by the availability of loans and become habitual borrowers.
Loans should be the last resort for people because usually lenders are very strict. Only in compelling circumstances, one should go in for loans. But if such a dire necessity arises, one should have perfect and unfailing plans to repay the loans. - 23217
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posted by X - Men @ 2:49 AM
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