As a borrower it is always important to get familiar with the
different types of loans more so the difference between secured and unsecured loans. Most lenders offer both but which one is good for you? Let us now examine each one of them in an attempt to see the difference.
A secured loan is a type of loan whereby the borrower pledges some of his assets as collateral to the loan. In the event that he defaults, the lender takes the full ownership of the said assets. The lender may sell this asset(s) in order to recover his money. On the same note, if the lender happens not to recover the full value of the loan by selling the said asset, he can obtain a deficiency judgment to recover the remaining value from the borrower.
Secured Loans Interest Rates, Maturity Period and Value
Generally speaking, as compared to the unsecured loans, secured loans normally attract lower interest rates due to the lower risk of default. In the same light, the lender may be more lenient in terms of the maturity date and give you a longer maturity period. In most cases lenders allow corporate borrowers to borrow for a long-term period of up to 30 years with the value of loan ranging from $25000 to $1000000 (in proportion to the collateral value).
The secure personal loans usually extend to a term not exceeding 10 years with the loan value ranging from $3000 to $100000 depending on the collateral value.
An unsecure loan is yet another type of loan. Unlike in the previous case, these categories of loans usually require no collateral. Such kind of loans are thus supported by an individual’s (or corporate) credit worthiness. As you can see, in this case the goodwill and the credit history of a borrower play the role of security to the lender. It goes without saying that only very few individuals and businesses can access such loans.
Unsecured Loans Maturity, Interest rate and Value
Unsecured loans work best for companies (and individuals) that have created and sustained long financial dealings with the lender. It delves a lot on the spirit of mutual trust based on the past dealings. Unlike the secured loans, in this case a lender can be able to get a large amount of loan for a longer maturity period without necessarily having to pay exorbitant interest rates. Small and medium sized businesses without a good credit rating and no requisite collateral can only get up to about $200000. At the same time this greatly depends on the lenders terms of operation.
As for the personal unsecured loans, the maturity date may extend up to a maximum of 5 years and one may borrow from $3000 to $100000. Again this also depends on the relationship between the lender and the borrower. In most cases high interest rates will be charged.
From the above discussion, it is now possible for you to understand the difference between the secured and unsecured loans. Whatever the case, always ensure that you borrow an amount that you can afford to repay.