Choosing a loan is a difficult task, as credit conditions depend on it. Loans are selected according to: desired amount and loan terms, credit history, income level and ownership.
All loans are conditionally divided into two types: secured and unsecured loans. They have many differences that borrowers should be aware of. In this article, we will understand its features, consider all the pros and cons, and also try to understand which one to choose.
What are unsecured and secured loans?
Secured and unsecured loans are two types of loans. In the first case, borrowed funds are assumed to be issued against collateral. A guarantee is a legal measure that mitigates the risk of non-repayment of a loan. In this case, the guarantee is the property, which is executed if the debtor is unwilling or unable to repay the debt on time. Unsecured loans are provided by unsecured banks and microfinance organizations.
The main differences
To get a secured loan, the borrower penetrates the property.
It can be real estate (an apartment, a bedroom, a part of an apartment, a private house, a summer residence, a plot of land, a commercial property, etc.), a car, special equipment, titles and other assets. At the same time, the property must have liquidity corresponding to the collateral situation. As a rule, the loan amount issued does not exceed 70-80% of the value of the property.
Secured loans differ in the fact that loans are issued for large amounts and for a long time. And borrowers are not always required to prove their income with certificates and papers. This is due to the fact that if the borrower defaults on its obligations, a bank or other financial institution can sell the collateral at a market price and return the money. Collateral ownership reduces risk to the lender and is a guarantee that the loan will be repaid.
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An unsecured loan is an unsecured loan.… Most of the time, they look like quick loans. That is, relatively small amounts are emitted for short periods of time (from 2 to 3 days to 1 year). To obtain this loan, a minimum package of documents is required. The borrower does not need to run around the authorities and collect certificates.
Microfinance organizations specialize in issuing unsecured loans. In them, the procedure for obtaining a loan is simplified. The borrower needs to go to the company's official website and fill in a questionnaire. A loan application is reviewed by an MFI within 1 to 30 minutes.
Today, there are many microfinance organizations where you can get an unsecured loan. For example, on good terms, you can submit a loan application to Creditplus.ru. The company offers an interest-free loan to all new customers.
Advantages and disadvantages
Benefits of secured loans:
- Low interest rates as banks take less risk;
- A wide range of time allocated for loan repayment (from 6 months to 10-15 years);
- Guarantors and income certificates are rarely needed;
- Get a large loan;
- CI doesn't matter.
The main disadvantage of such loans is that the borrower must own a property, which covers the loan amount at 120-130%. And in case of delay and violation of payment terms, the bank takes this property. Another disadvantage of this type of loan is the loss of time, effort and money in registering all the papers. The guarantee must be legally correct. For this, various certificates and documents are collected, and the borrower is committed to this. Other disadvantages include the impossibility of obtaining a deferral and the obligation to register for insurance.
Advantages of an unsecured loan:
- You don't need property to receive a loan;
- High loan processing speed;
- Lack of bureaucratic delays;
- Ease of obtaining a loan.
There are also disadvantages to unsecured loans. Firstly, it is the inability to receive a large amount for a long time. The interest rate at banks is higher than when applying for a secured loan. But microfinance organizations offer the first loans at 0% per day. And discounts are made for regular customers.
Which loan to choose?
Consider several factors when choosing a loan. Here are some simple guidelines:
- Consider your desired loan size.
- Take a look at the interest rate.
- Assess your strength. If you're not sure you'll be able to repay the money on time, it's best not to take out a secured loan. You will not be able to issue a deferral, therefore, you will lose your property.
- When applying for unsecured loans from the same MFI, you can always borrow large amounts. Most microfinance organizations have a loyalty program, whereby interest rates are reduced for regular customers and the credit limit is increased.
- Consider the urgency of the loan. A secured loan takes a long time to complete. And you can get an unsecured loan within 1 hour.
Secured and unsecured loans have many differences that must be taken into account when applying for a loan. Before taking out this or that type of loan, consider everything and carefully consider each proposal. Mortgage loans, although they allow you to borrow any amount for a long time, but that is the risk of losing your property in case of delays and non-payment of debt.
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