Let’s explore unsecured loans and secured loans. What are the differences between these two types of loans, and what are their respective advantages? This article will help you understand these loan services.
Introduction
Currently, the demand for business loans is high, especially among young people. Banks and financial support companies are the most reputable places that individuals choose for safe, clear, and legally compliant borrowing in Vietnam.
To meet the diverse needs for loans, these banks and financial companies continuously launch various loan products and services to cater to their diverse customer base. Unsecured loans and secured loans are two widely offered loan products that are indispensable at banks and financial companies.
So, what are unsecured loans and secured loans? Let’s find out in the following article.
Secured Loans
A secured loan is a type of loan where you use an asset as collateral to secure the loan. The asset must ensure that the borrower retains ownership rights. For example, you can use land, houses, vehicles, etc., as collateral for a loan.
Once the bank approves your application and disburses the loan, the asset remains in your possession, but the bank holds the ownership documents.
- Flexible loan terms: The loan duration can be up to 25 years, reducing repayment pressure on the borrower.
- Lower interest rates: Secured loan interest rates are lower than those for unsecured loans, typically averaging around 7% per year compared to over 10% per year for unsecured loans.
- High loan limits: Borrowers can get up to 70-100% of the asset’s value, making this loan type suitable for those needing significant capital for business investment.
- Additional requirements: Besides the collateral, banks may have other requirements for loan approval. The collateral must be appraised and valued by the bank.
Advantages
- Lower and more stable interest rates than unsecured loans.
- Flexible interest repayment methods.
- Meets large capital needs of customers.
- Long loan terms.
Disadvantages
- Requires collateral such as real estate, cars, or valuable assets.
- Although the asset remains under your ownership, failure to repay the loan will transfer ownership to the bank.
Unsecured Loans
An unsecured loan does not require collateral. Credit institutions approve loans based on the borrower’s reputation and income. Factors considered include:
- Customer’s reputation: Position and status in the company or society.
- Credit history: Previous loans, current loans, and any history of late payments. Financial institutions and banks can check credit scores to decide on loan approval.
- Income: Main income source and monthly income.
- Employer’s reputation: The organization or company where the customer works.
Comparison: Unsecured Loans vs. Secured Loans
| Feature | Unsecured Loans | Secured Loans |
|---|---|---|
| Collateral | Not required | Required |
| Interest Rate | Higher | Lower, decreasing for loyal customers |
| Approval Time | Quick | Longer |
| Procedures | Simpler | More complex |
Which Loan Type to Choose?
Choosing between an unsecured loan and a secured loan depends on the borrower’s needs. Consider the loan amount, repayment ability, and other relevant factors.
- Unsecured loans: Suitable for living expenses and smaller loan amounts due to simpler procedures and daily decreasing interest rates.
- Secured loans: Suitable for investment, home purchases, or car purchases, offering higher limits and more reasonable long-term interest rates.
Conclusion
Comparing the benefits of both loan types provides a clearer perspective before signing a loan contract. Regardless of the loan type, always consider your financial ability to ensure timely repayment to the bank.
We have explored unsecured loans and secured loans—two popular loan solutions with practical benefits. This article aims to provide basic information on these loan types, helping you make informed decisions.
If you need a quick loan with minimal time investment, use the Viettel Money app with “Easy Loan” and “Consumer Loan” features for easy one-touch payment and tracking of all loans and payments.
