In finance, a loan is a lending of funds by one or more persons, institutions, businesses, or other entities to others, enterprises etc. The borrower is then liable to pay interest for the amount borrowed and eventually to repay the total principal amount borrowed. Loans in the financial market come under two major categories secured and unsecured loans. Each category of loan has different ways of payment in addition to interest rates.
For instance, in a secured loan, the borrowers have to pledge an asset or assets as collateral with the lender. This is done against the proceeds of the loan. A borrower can use this type of loan for any purpose like purchase of a home, property or cars and any other such purposes. Such collateralized loans carry low interest rates and small installments too. It can also be availed to meet any emergency expense. To get rid of dues, the borrowers can also sell the collateralized assets.
On the contrary, unsecured loans are available without pledging collateral to the borrowers. They may carry high interest rates and huge installments. But, these loans are not easy to qualify for. Borrowers have to prove that they have the capacity to repay. And if there is no proof of that, then the lender may consider that the borrower is indulged in illegal activities like fraud.
Thus, borrowers have to make some efforts to prove their worthiness. However, if they do so then they can easily avail this loan type. But, there is a drawback for the borrowers. If they fail to repay it timely, they would owe more to the lender than the actual loan amount. For instance, if the borrower to borrow a thousand dollars and failed to repay it timely, then he would owe the lender ten thousand dollars.
In case of an unsecured loan, borrowers have no option to choose the repayment principal. It may be either way, either secured or unsecured. However, borrowers should compare the amount of loan as well as the terms and conditions of the loan before they decide which one to opt for. The borrower may also ask for the help of professionals in order to avail a better loan.
The interest rate charged on the loans vary from lender to lender. So, it would be prudent for the borrower to do a thorough research before applying for a loan. Borrowers can visit the websites of different lenders to gather information about their interest rates. It would also be advisable for them to compare the quotes of at least three lenders. With this, they can negotiate with the lenders effectively and come out with the best possible deal.