If you’ve already been searching for the information about loans, you should probably know that there are two main types of the loans – the secured and unsecured ones. In this article we’d like to tell more about the secured loans – why are they called so, what is their main difference from the unsecured ones and when are they used.
So, the main difference between these types of a loan is a collateral. It is present if we talk about the secured loan. It, literally, guarantees, that the borrower will repay the loan in any case. Otherwise, the collateral will be taken by a lender.
As a rule, some precious objects, like the real estate or cars may become a collateral. Sometimes, when the loan is taken for the purchase of a house or a car, this same house or car may be a collateral, which will be taken away, if the borrower fails in repaying the debt.
The secured loans may be called a more flexible tool for borrowing the money. They meet the less number of requirements from the lender, than the unsecured one, because of the guarantee, that the money will be back in any way.
If you are going to borrow some huge amounts of money, secured loans may be the only way to receive the needed sum. But before you should think well, if the estimated price of the collateral is enough for repaying the debt. As a rule, its cost must be 20-30% higher, than the size of your debt.