A:

Secured loans are better for the borrower than unsecured loans because the loan terms are more agreeable. Often, the interest rates of secured loans are lower and the repayment periods are longer. Secured personal loans are typically the best and only way for borrowers to receive large sums of money; the “secured” aspect implies there is a guarantee the loan will be repaid.

Secured Loans and Collateral

Typically, the way this security is enforced is through a form of collateral such as a house, car or other form of valuable personal property. Secured loans may also be ideal because they come with lower interest rates, higher borrowing limits and longer repayment terms. Examples of secure loans include mortgages, home equity lines of credit, or automobile, boat or recreational vehicle loans.

Unsecured Loans and the Lending Perspective

Unsecured loans are often used for credit cards, personal loans, personal lines of credit and student loans. Unsecured loans are more expensive for the borrower in the short term because most of the risk is shouldered by the lender; if the debtor fails to pay back the loan, the lender is unable to take possession of the borrower's assets as a way of paying itself back.

Secured loans offer more advantages, but the risk is leveraged on to the borrower. Access to collateral is not always available, in which case unsecured loans may be the only option. However, because risk is carried disproportionately by the borrower, secure loans are preferable for lenders. If the borrower meets the minimum requirements, lenders are often eager to extend secure loans.

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