There is a wide variety of loan types available and many are provided with different repayment periods, interest rates and charges. The two main types of loans, however, are:
- Secured Loans
- Unsecured Loans
A Secured Loan is a loan that is secured against a valuable asset and the lender can force the sale of the asset the borrower has offered as security against the loan. This ‘security’ can come in many forms such as, a car, boat, share certificates, plane or a house.
The advantage of a secured loan is that interest rates and costs are usually lower as the lender still has recourse to funds in a worst case scenario. The disadvantage, however, is that the borrower runs the risk of losing the asset if he/she cannot repay the loan.
An Unsecured Loan is money that you borrow that does not use an asset as security. That is, the borrower does not agree to provide any security or collateral in the case that he/she defaults on the repayment.
The advantage of an unsecured loan is that the lender cannot repossess the item that you have bought with the proceeds of the loan, nor can they enforce against any of your other assets. The disadvantage, however, is that in return for the lender’s greater risk factor, you will likely be paying a higher level of interest and less flexibility than is the case with a secured loan.
Depending on one’s needs, there are many loans on the market designed for different purposes and people in different circumstances. Other types of loans include; car loans, student loans, bad credit loans, home loans, personal loans, tenant loans, home improvement loans and low interest loans. For more information on these types of loans, please take a look at our Glossary.
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