Are you looking forward to applying for personal bank loans? To buy a car, a house, or just bank loans for personal needs? Well, your purpose can be anything. But, before applying for any kind of loan you should know all about them. There are mainly two different types of loans, secured loans, and unsecured loans.
Understanding the basic difference between these two is an important step towards financial literacy. This also can have a long term benefit in your financial health, so that you can apply for loans accordingly. So, here we will discuss a few differences to understand a secured and an unsecured personal loan.
What Is Secured And Unsecured Loan?
Secured loans are generally referred to as any type of loan where you have to pledge some assets as collateral for the disbursement. The money is secured against your personal asset as collateral. So, if you fail to pay the debt then the creditor takes the possession of your asset.
In finance, the unsecured loans are defined as those types of loans where the debt is not collateralized. Generally, the disbursement of an unsecured loan depends on your credit score. It can be defined as the numeric representation of the borrower’s ability to pay back the debt of the unsecured loans.
Key Differences of Secured Loan vs. Unsecured Loan
|Secured Loan||Unsecured Loan|
|1. Collateral||Requires Collateral||No Collateral needed|
|2. Interest Rate||Lower Interest Rates due to the collateral requirement||Higher Interest Rates because of the absence of collateral|
|3. Risk Probability of losing an Asset||Higher chance of losing collateral asset||No risk on losing collateral asset|
|4. Loan Amount||Higher loan amount approval||Lower loan amount approval|
|5. Loan Tenure||Longer loan tenure||Shorter loan tenure|
Since by now you’ve got a basic idea about a secured and an unsecured personal loan. So, here we will discuss some major differences between these two loans as stated in the table above.
Secured loan can only be issued against the borrower’s personal asset known as collateral. But the disbursement of an unsecured debt depends on the borrower’s credit score.
2. Interest Rate
In the case of secured debts, you will find a low interest rate compared to unsecured loans.
3. Risk To Lose An Asset
For secured debts, if you fail to pay the debt, then your asset used as collateral will be acquired by the creditor. But unsecured loans don’t require any collateral.
4. Loan Amount
Because of debt security, the debt amount of the secured credits is higher than in unsecured credits.
5. Loan term
Since the principal amount of the secured debt is higher so the debt payback term is also higher compared to the loans unsecured.
Examples Of Secured And Unsecured Loan
As we have learned earlier, a secured loan is protected by collaterals. It’s usually the best way to get a large amount of money in Singapore bank personal loans. The moneylender prefers financial assets that are easy to collect and can be readily turned into cash. A home is perhaps the most important financial thing in our life. But buying or building your dream home can be costly and requires shelling out a lot of money.
So, home loans can be a good option of getting a large amount of money at a low rate of interest for your financial needs. A car loan is another most common secured loan availed by individuals or business organizations. Some other examples of secured loans are business loans and mortgages.
Well in case of an unsecured loan, it’s a little difficult to get as it depends on the borrower’s credit card history. But if you have a good credit card history your loan application can be easily issued. If you fail to pay off the debt then the lender can file a lawsuit against you. One of the biggest examples of unsecured debts is a personal loan, which you can borrow from a bank for easy monthly installments.
Another example can be an educational loan, borrowed by students to pay-off their educational expenses. Some other examples of unsecured loans are vacation, home renovation, wedding, credit card, and debt consolidation.
Tips Before Getting A Loan
Ideally, we all want to earn enough money to make our ends meet. But in reality, that often leads to borrowing from money lending companies with higher interest or lower interest. Most of the lender’s promise low-interest rates, quick approval, and easy to complete the application process. But as a borrower, you need to plan things accordingly to get the details at your fingertips.
Make sure to study and research the market interest rates to get the best possible offers available for you. And for a high loan amount, make sure to consult a financial expert if possible. However, here we will discuss a few important tips before getting a loan.
1. Know What You Need And How Much To Borrow
Perhaps the most important tip before getting a loan is to know how much money you actually need. So, never lend money more than you can actually repay. In case of an unsecured loan, do remember your credit limit shouldn’t cross your monthly income. Understanding your actual need can help you develop a credit history or can protect your collateral.
2. Research about the availability of the loan you are looking for
It’s very important to know what kind of loan you are looking for. So, you can do your market research accordingly and take the necessary steps on higher interest rates. For example, if you want a personal loan then you should know about different kinds of personal loans and their interest rates.
3. Know your credit history
Make sure to have a good credit history before applying for any unsecured loans. The history of your credit cards can determine your ability to pay back the debt. Without decent credit cards history, the lenders won’t lend you any money.
Where To Apply?
Financial institutions can offer you different types of loans along with their terms and conditions. You can compare the key terms and choose the best package available from different money lenders. For example, key terms include the principal amount, rate of interest, loan term, and fees just to name a few. But do remember, secured loans are easier to get as it pledges for collateral. But any unsecured loan requires good credit history for the disbursement.
Well, if you’re a Singaporean then we have great news for you. Fortune Credit is a licensed moneylender that operates in Singapore. They can provide you with easy and fast cash solutions that’ll meet your requirements. Since Fortune Credit is a licensed moneylender, you can expect transparent service which is cheap and convenient. You can directly visit their office to get detailed information about your requirement.
Loans can be of great help to people who cannot afford to spend a huge amount of money at a time. But before applying make sure to know all about the terms and conditions and different offers available in the market. Always seek for a licensed moneylender, they always abide by the government rules and keep a transparent transaction.