Often in our search for finance options, we are led into a crossroad where we have to make a choice between secured and unsecured loans. Both are equally alluring and put the borrower in a difficult spot. It is difficult to make up the mind regarding one particular finance option because each has their share of advantages and disadvantages. What makes it more difficult to decide upon the finance option is that both secured and unsecured loans have a conflicting set of features, and the disadvantages of one are countered by the other.
Secured loans vs. Unsecured loans
Secured loans are the most conventional method of financing large sums of money. Even in older times people used to take loans to use in agriculture or other such needs by keeping their lands as security. Unsecured loans, on the other hand are of a recent origin. Since secured loans required the borrower to keep his home as collateral, many people who were without homes or who did not prefer attaching homes to obligations were left without finance. This also hampered the lending business of the lenders because the group was sizable. Thus, unsecured loans were launched as an alternative to the secured loans.
Misconceptions on Secured loans
There are many a myths doing rounds that have led to a sagging popularity of secured loans. People believe that by offering home as collateral they will have to move home until they repay the amount lent. People only transfer the ownership rights and not the right to live in the home. The lender can lay claim to the home only when the borrower does not repay the loan in full.
This will particularly interest the homeowners who do not take secured loans to protect their homes. Another important point that these people need to keep in mind is that they can not escape the lender even on taking an unsecured loan. Although these loans are offered without any backing, the lender finds ways through which to recover the amount remaining on the unsecured loans.
This will shift a major part of the clientele for unsecured loans that enterprises of the homeowners. However, unsecured loans continue to be the lifeline for the tenants. This is in spite of the fact that unsecured loans are more than the secured loans. The rate of interest charged from the unsecured loan customers is higher because of the larger risk involved.
One often gets to hear about credit history in the financial circles. Credit history is a record of the conduct of an individual in terms of the credit behavior. Any failure by an individual on any debts, loans, or mortgages is immediately recorded in the credit file. Although lenders prefer the borrower to have a good credit history, they do not attach a special importance to it if the borrower is offering contractual. Home can back the loan if the borrower refuses to. The backing however is absent in an unsecured loan. This is why …