The Difference Between Secured And Unsecured Loans

A secured loan is a loan in which the borrower has to pledge collateral for the quick credit loan. A collateral to secured loan can be a home, car or any other movable or immovable property These loans are secured by the collateral rendering them low risk hence they usually have relatively low interests. If a loan is not secured it is known as unsecured loan. Unsecured loans have no collateral attached to them. Banks usually charge lower interest rates on secured loans than on unsecured ones. This is because the secured loans have lower risks.

A secured loan grants the lender a part of the ownership rights to the specified asset. Where the security/collateral is a property like a home is called a mortgage loan.

If the borrower is unable to pay off the debt, the lender can acquire the ownership of the collateral and may choose to sell it so as to recover the amount initially lend to the borrower. This is done through a process known as repossession. Repossession is the process of taking back the assets used as collateral by the lender if the borrower is no longer able to finance debt. After repossession of mortgaged property the property is then put up for sale to recover amount owed through a legal process known as foreclosure.

If this does not yield an amount equal to the debt, then the lender can get a deficiency court ruling for the remaining amount. The nonrecourse loan is a type of secured loan where the asset (collateral) is the only security against the borrower that the creditor has. Here there is no other recourse offered against the borrower in case the whole amount is not recovered after the foreclosure, the loan.

On the borrowers? side, secured loans are good for building their credit score. They are available even to those who have defaulted or have been denied a?money lender personal loan.

Source: http://zerotom.net/the-difference-between-secured-and-unsecured-loans/

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