A personal loan comes in two forms. Secured loans and unsecured loans are the categories of available of personal loans. One is not necessarily better than the other. Various circumstances dictate whether a borrower chooses to select a secured loan or an unsecured one. A clear definition of both reveals exactly what these personal loans are.
In essence, an unsecured loan is a loan approved based on a promissory signature on the application. The borrower promises to pay the loan back as stipulated in the terms. The lender does a credit and financial check on the person. The individual likely needs a certain threshold of income for approval. In the end, the lender is issuing a loan to a qualified borrower with the promise of repayment. Defaulting on the loan means the lender has to take collection — or even legal — action to recover the funds. A lender really does not want to go through such a process. As such, the lender tries to only approve the most qualified of applicants.
Most personal loans are issued as unsecured ones. Secured loans, however, are still not exactly difficult to locate.
Examples of Collateral
In order to procure a secured loan, collateral needs to be put up to back the loan. Cars and motorcycles are common assets presented as collateral. Jewelry, artwork, collectibles, furniture, and more could be offered. The lender is likely to accept collateral that is clearly valuable, easy to seize, and equally easy to sell.
The lender really does not want to seize and sell anything. Things would work out best for all parties if the loan was repaid on time. Also, asset seizures do not occur right away. Normally, the loan would need to be seriously delinquent in order for asset seizures to commence.
The Best Loan
Generally, the best loan is the one with the fairest terms and interest rate. Generally, secured loans have lower interest rates. Would-be borrowers should still look at various lenders to find the most generous offer.
Secured loans are loans back by collateral. Collateral is something of value put up to back the loan. If the loan is defaulted upon, the collateral can be taken by the lender. The lender then sells the asset to recoup money to pay off the loan. Secured loans are required when someone does not qualify for an unsecured loan. Additionally, secured personal loans may be necessary when the amount of the loan is rather high. $25,000 may be far too much for a lender to issue to someone based solely on the person’s credit history alone.