unsecured loans | What is the Difference Between the Guaranteed and Unsecured Loans

What is the Difference Between the Guaranteed and Unsecured Loans




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Guaranteed



Of all the dozens of different types of loans available, they all fall into two categories. The loans are either secured or unsecured.

Guaranteed Loans
The term "secured loan" means that the money is borrowed against, or secured by, an asset that is the owner. This asset is called your collateral, and if you can not pay the money the lender can take advantage. Mortgages, mortgage loans, car loans are all types of secured loans. Other examples include car title loans and payday loans.

Secured loans are the lowest risk loans for lenders, so they tend to have much more favorable terms than unsecured loans. This can mean a longer loan period, lower interest rates and a greater opportunity for negotiating the terms.

Secured loans are much easier to get, provided you have sufficient collateral. It gives lenders a sense of security knowing they have a house, a car, or a boat that they can recover and sell again if you do not pay the loan. They do not have to rely on their ability to repay the loan, they have an element of value in exchange, so they are much more willing to lend in these situations.



Loans without Guarantee
An unsecured loan is not backed by, or lent against, any type of collateral. The lender is basically taking the word borrowers and trusting that they will pay. This trust is generally backed by the control of the credit report statements and the borrowers of the bank to make sure they have the ability to make the payments.

In the event that the borrower in the loan, the lender has little choice but to freeze the bank accounts of the debtor, or have a collection agency pursue legal action. Both options require time and money to explore, so the lenders in these types of loans are taking a large financial risk that lends the money.

For this reason, unsecured loans have shorter payback windows, higher interest rates and a small possibility of negotiating the terms.

When offered through banks and credit unions, unsecured loans are called personal loans or signature loans. Credit cards and student loans are other types of unsecured debt held by millions of people.

In short - unsecured loans are much rarer and harder to obtain. Having any kind of collateral, from writing your house to the title of your car, gives you a great advantage in finding a lender willing to work with you.