Types of Personal Loans

A Glimpse Into The Secured And Unsecured Personal Loans

Emergencies can happen at any point in time in life. None can predict it; moreover, none can avoid this too. In order to overcome this kind of unavoidable circumstances, the popularity of personal loans is growing in the market. The more uncertainty in life is increasing the more people are getting inclined to this kind of borrowing options. If you are to want to take the help of this kind of borrowing options then before taking one, you should know that mainly two types of personal loan are available in the market, namely secured and unsecured personal loan.

Both these kind of loans are popular in the market and people based on their requirement choose one of them accordingly. Now let’s check out what are the fundamental difference between these two types of personal loans and what are its pros and cons.

Secured personal loans

The name itself self-explanatory that in case of this kind of personal loans you need to give something as collateral to your lender so that he can secure the amount he is lending. It is needed as a security so that if you fail to pay the lender can realize his money by selling your asset. In this way, your lender can feel secure, and thus he can offer many attractive benefits like longer loan repayment tenure, lower interest rates and so on. This is the reason always from the lenders perspective this kind of loans are less risky and getting it also easier as well.

But on the other hand, this kind of loans can put the borrower into some amount of risk as if you fail to pay the repayment amount the lender can take the possession or sell it at his own will. So if you look into it, there are both pros and cons of taking this kind of loan.

Pros of secured personal loan

  • You can get this kind of loan easily and at any point in time.
  • You can get a lower interest rate which can curb the cost of taking the loan.
  • Moreover secured loans can offer more repayment time than unsecured ones.

Cons of secured personal loan

  • You have to pledge something like home or equity or factory for taking this kind of loan so you can lose your possession in case you default the payment.
  • Secured loans sometimes come with a variable interest rate which can make your borrowing costly.

 

Unsecured personal loans

Unsecured loans are much simpler than secured ones. You take money from the lender with the promise of paying and pay EMI on loan monthly until it is paid in full. As there are no security or collateral involved, so you tend to pay a higher rate of interest than the secured personal loans as the lender is taking more risk by lending you the money without any security.  Moreover, if you fail to pay the repayment amount regularly, then it can attract a penalty as well. Just like the secured one it also comes with both advantages and disadvantages too.

Pros of Unsecured personal loans

  • The processing time is faster so you can get the money almost instantly into your bank account.
  • As no pledging is involved so your assets will be safe even when you fail to pay off the loan.
  • Anyone can apply for this kind of loan if he has a good credit history.

Cons of Unsecured personal loans

  • You cannot get a large amount of money with this kind of loans
  • The interest rate is higher and the repayment period is also short.

So which one you should take if you need emergency funding? Well, that depends on your requirement and situation and your preference.