Much has been said about loans and their security. Both lenders and borrowers strive for a greater security in their operations. There is seldom a bad intention behind the give and take of security; it all boils down to the protection of ones own interest. So, in order for everyone to live in peace, let us see what equilibrium the market has in these matters.
As we know, a secured loan is backed by some valuable provided by the borrower, typically a property. There is certain compensation in the way of conditions that are conveniently regulated by the government and nowadays the borrowers, usually in inferior negotiating conditions, are never left to their own luck or negotiating ability.
So, if a borrower provides a security, the law says that he is entitled to better conditions. These may be translated into lower interest rates and/or longer payback terms.
On The Other Hand
An unsecured loan will give peace to the borrower, since his property will not be affected, meaning it will not be used as a collateral or guarantee for the loan. As a counterpart, the lender will have a greater risk of not being able to recover his money, so he will ask for compensation, so to speak, namely a higher interest rate and a shorter payback term.
There are other differences that call for further study, when evaluating which type of loan to apply for. Such is the case of the fees that correspond to a secured loan. They are appraisal fees, home insurance in some cases and much more paperwork than for an unsecured loan.
Every Rose Has Thorns
When applying for an unsecured loan, the requirements are stiffer, meaning that the loan will be granted after a thorough evaluation of the borrowers job status, credit ratings and banking status. Naturally a good, steady job with a long seniority will give a greater chance of qualifying for a loan than someone who is barely making ends meet and has been at his job for only six months, even if credit ratings are within the normal score.
Even A Secured Loan
As said above, a secured loan will give better conditions to the borrower, but even these have to be well planned, meaning the borrower will have to evaluate his or her situation with the greatest honesty. It is always better to apply for a longer term with easier payments. Then, if you wish to shorten the payback period, you can make extra payments if these are allowed or refinance the loan towards a shorter term.
Refinancing has fees and they have to be measured against the savings posed by the shorter term, but this kind of dilemma is always much easier to solve and lighter on the future than facing delinquency or foreclosure due to default.
One Major Recommendation
Never act on impulse or if you are not sure of what you must do. Nothing is as urgent as your security. There is always someone you can take advice from, always someone willing to help and always sources of information that will give you an unbiased opinion for your benefit and that of your dear ones.