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Saturday, August 1, 2009

Secured Loans Or Non-Secured Loans?

Giving loans is one of the oldest businesses in the history of mankind. Giving loan is a simple process where one person lends money to another person and in return the other person can pay this money back after some duration with some additional money as interest. In current times, the concept of loans is still the same but the terms and conditions make it a very complex process.

Basically, there are two types of loans available in market today. One is called secured loan and the other is called unsecured loan or non-secured loan. Secured loan is something in which the lender is assured to getting his money back since he keeps some asset of the borrower as collateral. This asset can be his home, car, jewelry or any other tangible and precious thing. This way, the lender has low risk associated with the loan since he can always recover the money lent to the borrower in case the borrower defaults on his payment. Since the risk of loan is low, the loan is also cheap and interest rates are low.

The other type of loan is called unsecured loan or non-secured loan. In this type of loan, the lender lends money to the borrower based on his credit history and his face value. There is no collateral which is deposited with the lender. Since the loan is risky for the lender, therefore the interest rates are high in these types of loans. The interest rate and other terms can be very strict or easy depending upon the credit history of the borrower. If the borrower has a track record of making payments on time for all his other loans and bills, then he may get the loan cheaply.

Which loan is best for you depend on your situation and credit history? If you have a good credit history, you should go with non-secured loans since you will not have to give any collateral to the lender.


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