Secured vs. unsecured business finance loans

3 April, 2013

The search for an appropriate finance solution often takes us to a crossroad, where we are asked to select between secured and unsecured loans. Borrowers often get confused on this choice, as both the loan options are equally appealing. Choosing between two is quite challenging as both the finance options have their own advantages and disadvantages. Both the secured and unsecured loans come with their own contradictory characteristics, which makes the selection, even harder. Disadvantage of one loan option is handled by the other making both, equally alluring to the borrower.

The battle between secured loans vs. unsecured loans

Large amount of money can be financed through the secured loans which are a conventional loan option for the borrower. People have always been using land and gold to get the secured loans, which is an age old loan option, for the borrowers. Unsecured business loans are a newer version of loan alternatives. Secured loans demand to keep home, land or jewellery as collateral for the loan. Thus, many people who do not own any valuables are left with no finance option for them. Lenders are also not able to make huge profits, as people who are able to keep something as collateral are limited. Thus, the invention of unsecured loan took place, in order to help people get loan, without any collateral.

Delusions on Secured loans

Various myths have hampered the popularity of secured loans such as the home kept as collateral will have to move till the loan amount is repaid completely. One has to understand that the only thing transferred is the ownership rights not the right to stay in the house. You must remember that the lender cannot be fooled in any kind of loan, be it a secured or unsecured loan. Lenders can find many ways to get the loan amount back from the borrowers in the unsecured loans as well. Several home owners might also like to opt for unsecured loan; however it remains the lifeline for the tenants. Nevertheless, interest rates are higher in unsecured loans as compared to secured loans.

Credit needs

The lender always examines credit history, as it is the behaviour of an individual, in terms of credit performance. Failure on any debts, loans or mortgages will create a negative impact on your credit history. If the collateral offered is huge, then the lender may not pay much attention to your credit history. There is no collateral backing in unsecured loans. Thus, the lenders offering unsecured loans on bad credit history try to compensate the risk by higher interest rates.

Separate provisions for secured loan

Secured loans allow borrower to get a loan on much favourable terms as compared to an unsecured loan. Many lenders may allow the borrower to take a desired time period of loan repayment, on a secured loan. Term of repayment can be extended which, in turn, will demand the borrower to pay higher interest rates. The loan term and interest rates can be discussed with the lenders before taking a loan. You must choose the finance options, depending upon your need and condition. One should always crosscheck the loan requirement and its details, with a professional.

Be sure to check out Noble Loans’ blog if you wish to find out more regarding secured and unsecured business loans, or to apply for a loan now!

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