Buying a property or an asset such as a car, house among others sometimes may need a huge amount of money which depends on whether you have a security or collateral to obtain the specific amount of money. This will often require you to get either a secured loan or unsecured loan from a money lender. What is the difference between these two types of loans? The following are some of the differences between the secured and unsecured loans;
1. Secured loans are mainly long-term loans whereas unsecured loans are short-term loans. This is the main reason why you need a security to obtain a secured as opposed to unsecured loan, which is short term hence there is no need of collateral.
2. Secured loans need a specified type of security or collateral while on the other hand unsecured loan do not need any type of security or collateral. This difference is linked to the amount of risk that the borrower gets by obtaining a given amount of loan. This is because the unsecure loan is built on a mutual good relationship between the two parties.
3. You cannot get a huge amount of loan with unsecured loan as opposed to a secured loan that enables you to get any amount of loan depending on the value of your security. With unsecured loan, you are limited to amount of loan. This is contrary to the secured loan.
4. Unsecured loans do not need a through underwriting process when compared to the secured process. This underwriting process in the secured loan is always to ensure that the security that you are providing matches the amount of loan that you need. In unsecured loan since there is no security, the process of obtaining the specified loan is simple.
5. It is much faster for you to get an unsecured loan when compared to the secured loan. This is because there is no many legal formalities that are needed before you are granted the loan. In fact, with unsecured loan, you can get your loan as fast as 24 hours or even less. This is contrary to the secured loan where you have to go through many processes as well as the legal formalities before getting an approval for the loan.
A clear understanding of the difference between secured as well as unsecured loans will not only help you to make an informed decision on which loan to take but also help you deciding on the cheaper loan between the two types of loan.
