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What are the types of personal loans?
There are two types of personal loans:secured and unsecured. Unsecured loan is the most common type of personal loan wherein you can borrow for a certain amount of loan simply based on your creditworthiness or qualifications. Whereas a secured loan is where you can borrow money by putting up a collateral.
- Higher interest
- Lower loan amount
- Shorter loan term
Unsecured loan has a higher interest, lower loan amount and shorter loan term because of the risk that the lender carries in the event of non-repayment. The lender stands to lose a lot of money and will incur profit losses if borrower defaults.
- Lower interest
- Higher loan amount
- Longer loan term
On the other hand, secured loan has lower interest, higher loan amount and longer loan term because both the borrower and the lender share the risk. In fact, the borrower stands to lose more than the lender in the event of non-repayment since the property (vehicle or real estate) will automatically serve as default repayment. Once a borrower defaults, lender usually sells the property to recover losses.