Know the meaning and working process of the pawn loan and how it differs from other loans.
Loans are divided into two groups: unsecured and secured. Unsecured loans are granted based on the borrower’s creditworthiness and are usually given to people with excellent credit.
Unsecured credit can be a revolving credit product with a credit limit, such as a credit card, or a term loan where the borrower receives a lump sum payment and repays it in monthly EMIs until the end of the term.
A personal loan is a common type of unsecured loan that can be used for a variety of purposes and has no restrictions on its use.
They can also be used for special purposes such as weddings, education, travel and emergencies, as well as debt consolidation loans to pay off current unsecured debt.
WHAT IS A SECURITY LOAN:
A collateral loan is a secured loan where the borrower can secure a loan by pledging an asset. The loan amount is determined by the value of the security. Because the lender can liquidate the asset if the borrower defaults, this type of loan is largely risk-free for the lender. This allows borrowers to get a larger loan amount at a reduced interest rate.
LIST OF ASSETS THAT CAN BE USED AS COLLATERAL:
- Vehicles owned by private individuals
- Real estate, both commercial and private
- equipment and machines
- Fixed deposits, bonds, mutual funds, stocks, and ESOPs are examples of investments.
- insurance policies
- collectibles and valuables
- Customers who owe you money in the future are receivables.
DIFFERENCE BETWEEN SECURED AND INSECURE LOANS:
- The main difference between a secured loan and an unsecured loan is the collateral that must be provided in order to obtain the loan. A secured loan requires you to provide the lender with an asset that will serve as collateral for the loan. A secured loan requires you to offer an asset as collateral, while an unsecured loan does not.
- The interest rate is another key difference between a secured loan and an unsecured loan. Compared to an unsecured loan, secured loans usually offer a lower interest rate. This is because lenders perceive unsecured loans as riskier than secured ones.
- Secured loans are easier to obtain. However, unsecured loans are more difficult because a banker is less likely to issue a secured loan.
- Unlike unsecured loans, secured loans typically have longer repayment terms. Secured loans generally offer borrowers a cheaper contract than unsecured loans.
- Secured loans are easier to obtain as they are less dangerous for a lender, but unsecured loans are more difficult to obtain.