What is Personal Loan
Personal loans are broadly classified into secured and unsecured loans. As the name signifies a secured loan is a loan against a collateral or fixed asset such as land, property or home owned by the borrower. A secured loan reduces the risk of the lender because unpaid loans allow the lender to liquidate the attached assets or property to retrieve the amount of loan. Secured loans are usually calculated on the basis of the market value of the property secured for the loan.
Unsecured loans as compared to secured loans do not require any property, land or valuable asset to be assigned to the lender to receive a loan. Unsecured loans are a feasible alternative to those who do not own any property or possess valuable land, property or fixed assets that can be secured against a loan. Tenants and students are likely candidates for unsecured personal loans
Both secured personal loan and unsecured personal loan are subject to: borrowers credit history, lenders credit policy, employment status of the borrower and debt to income ratio (DTI= Other Debts / Income)
The key benefits of subscribing to a secured personal loan are:
- Loan value can be equated to the market value of the secured property
- Flexible repayments options and discounted rates are available to secured loans
- Low rate of interest is provided to secured loans on account of low risk to lenders
- Negotiable loan clauses
Unsecured personal loans can be used to finance various personal finance needs such as: home improvement, debt consolidation, car finance, college fees etc.
The key disadvantages of subscribing to an unsecured personal loan are:
- Loan amount range is specified by the lender and
- Higher or competitive interest rates depending on borrowers credit history