Which is better for you in Secured and Unsecured Loans?
We are telling five such things, on the basis of which you can decide whether you should take a secured loan or Unsecured Loan.
Sometimes it becomes necessary for us to take a loan. Therefore it is important to know every aspect of the loan. There are two types of loans – Secured and Unsecured. What do these two mean? What is the difference between the two? Which of the two loans should you take? Let’s try to find the answers to these questions.
Secured loans are loans that the bank asks you to pledge any property to give. In an unsecured loan, the borrower does not have to mortgage any property with the bank. These loans are given by looking at the good financial condition of the person taking the loan.
Gold loan, home loan, car loan etc. are secured loans. Personal loans, loans on credit cards, etc. are examples of unsecured loans. You should choose the loan according to your need. Before this, you should know about the cost of taking a loan, the required amount and other charges.
How much loan amount?
Which loan will be right for you, it depends on the loan amount. Generally, your ability to earn an unsecured loan depends on your ability. Therefore it cannot be increased after a limit. In a security loan, the bank looks at the mortgaged property to decide the loan amount. Therefore, it is usually good to choose a secured loan when the loan amount is high. If you do not want a loan for a large amount, then you should avoid taking a secured loan.
What are the interest rates and fees?
It is also important to keep in mind the interest rate in choosing a loan. Since no assets are pledged for an unsecured loan and they are entirely based on the credibility of the borrower, the risk of default is high. This is the reason that the rate of interest in such loan is high. Apart from this, you also have to pay processing fees. Secured loan is given on the basis of a property. Therefore, in the event of default, the bank has the option to compensate the loss by selling the mortgaged property. This is the reason that the interest rate in the secured loan is less.
What is the loan repayment period?
In the loan lane, it is very important that in how many days the loan has to be repaid. Generally, the repayment period of an unsecured loan is much shorter than the secured loan. Unsecured loan can be for a maximum period of five years. The duration of the secured loan can be up to 30 years (home loan). Therefore, if you want a longer period to repay the loan, then it would be right to take a secured loan.
Effect on credit score
If you do not repay the loan on time, your credit score will be affected. This applies to both secured and unsecured loans. Secured loans are repaid by selling the mortgaged property, while the bank has to adopt a legal route to recover the amount in an unsecured loan. Therefore, if you default in an unsecured loan, your credit score gets spoiled for a long time.
What is the purpose of the loan?
What are you taking a loan for? The answer to this question also helps in deciding which loan you should take. For example, if you want to take a loan from a bank to buy a house. In such a situation, if you take a personal loan, then its interest rate will be very high. The loan repayment period will be very short. You will not have the option to repay it soon. Similarly, if you want to take a loan to buy a mobile, then it will be a mistake to take this loan by mortgaging your house. Therefore, this question is very important as to why you are taking a loan.
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