In business, a loan is a financial transaction in which one party lends money to another party. In finance, a loan is usually the lending of currency by one or more persons, institutions, or other entities to another person, organization etc. The borrower is obligated to pay interest on this debt as well as to pay the principal amount borrowed and eventually to settle the debt. The interest rates vary according to the lender’s risk level. It also depends on how long you plan to keep your money in the bank.
Loan can be of various types such as a home equity loan, personal loan, car loan, education loan, auto loan, etc. In any financial institution, there are both secured and unsecured loans. A secured loan is a loan where the borrower is pledged as collateral against the amount.
Unsecured loan means there is no collateral or security to back up the amount you are borrowing. It could be a line of credit or an open-end loan. If you take an open-end loan, you borrow an amount for a specific time period while you pay the interest over that period. Some lenders also allow you to make payments in lump sum once a month.
You can also opt for a line of credit, a revolving line of credit which allows you to borrow money at any time during the year. There are certain terms and conditions imposed, like you may borrow only a limited amount and the amount cannot exceed your personal credit limit. But if you want to pay off your entire debt in a short period of time, then this is your best option. Credit cards allow you to take a loan but with higher interest rates and with a much longer repayment period. But with the advent of the internet, there are various lenders who are offering unsecured personal loans online.
Unsecured loans are easy to obtain as long as you have a good credit score. There is no credit check for the borrower. These loans do not require a collateral evaluation before the approval. The borrowers can easily get these loans by providing their details like employment details, income status etc.
The interest rates on these loans are a bit higher than secured loans. This is because the lender has to consider the risk of loaning you money with the possible loss of his investment. In case of unsecured loans, the borrower looses the advantage of having any credit score. But if he makes his payments on time, then he will gain something in terms of increased credit score. So the choice is yours!