Unsecured Loans – The Loan That You May Never Need to Pay Back
In financial terms, a loan is a loan obtained by a lending firm or individual against an asset which can be your home, your car, your business or some other asset. In banking, a loan is a specific term involving the provision of money to an individual or organization by one or many people, institutions, or other entities. The borrower is then obligated to pay interest and to repay the principal sum borrowed as well as any outstanding balance before it is paid off. Most banks are open 24 hours to facilitate the loan process. For most people borrowing a loan, the most important thing is to know the terms of the loan.
One thing that all loan customers have to know is what are the different types of loans and how do they differ from each other? There are basically two types of loan and they are secured and unsecured loans. A secured loan is one that is made to serve the purpose of advancing money to individuals or organizations. This can be used for almost any business activity like purchasing machinery, land, inventory or tools. For this reason, you need to keep a record of the value of the assets that you want to borrow so that the minimum payment on the loan can be calculated.
Unsecured loans are the opposite of secured loans. They are made without any collateral or guarantee. This means that you are not required to keep a record of the value of your assets in case you fail to make the minimum payments. You are not obliged to repay loans in lump sums. Rather, you are free to borrow as much money as you require. The only condition here is that you must repay loans within the stipulated time frame.
While a secured loan is often secured by your property, unsecured loans are often unsecured and are taken against your own assets. If you fail to make timely repayments, the lender has every right to take away your asset. Credit cards, home loans, car loans and any other financial obligation are all possible sources of unsecured loan.
An unsecured loan can be either a closed-end or an open-end loan. A closed-end loan is when the lender lends the money to you in the hope that you will repay it on a specific date. In open-end loan, you have the option of borrowing a certain amount once and the amount is increased each time you request for it. This means that an open-end loan might cost you less money than a secured loan, but the advantage of this loan type is that you are not confined to a fixed repayment term.
Once you decide to get a loan and go ahead with it, you need to prepare yourself for the various formalities. First of all, you should make a complete list of all your assets and document the same. If you have any existing insurance policy or accounts receivable, mention them as well. Any documents that are required by the lender such as rent receipts, tax returns, pay slips, etc, should be handed over to you on the day of the signing of the loan agreement. Once all the documentation is ready, you can safely go ahead and apply for the loan.