Many people who want to apply for loans have this confusion whether to go for the secured or unsecured option. In the case of former, the loan is backed by a security. This security can be an asset or a property an individual owns.
When the borrowers repay their loans completely, they get back rights to their assets or property, which they had kept as a collateral with lender/bank. On the other hand, unsecured loans have no such requirement.
The biggest issue that comes with secured loans, whether long-term or short-term, is that it brings the risk of foreclosure. If the borrower hasn’t been able to repay the loan amount, foreclosure actions can be taken on the collateral asset by the lender in order to collect the money.
Why Are They Called Long-Term?
Long-term loans, as their name suggests, have a longer payment schedule. It lasts over a span of many years, generally, more than 2. This type of loan is suitable for people who want to buy a home, car or any other expensive commodity.
Unsecured long-term loans are beneficial for people due to the following reasons:
- As these loans are taken for a longer period of time, one is spared from keeping their asset as collateral with the lender. This way, they can use their assets in some other useful ways.
- Those who do not have a good credit score will find it hard to get the desired approval from banks. With unsecured loans, they have the option to get a loan from direct enders despite having a poor financial score.
How To Manage Loans?
If you have taken multiple loans, it can be quite difficult to manage them. However, by following the tips given below, you can control them easily. Have a look at these tips:
Make a Payment Schedule
One of the most effective loan management tips is to set a payment schedule. This schedule must be made keeping in consideration all the loans you have obtained, their due dates, and rate of interest etc. Set reminders for their installment date and make sure you are paying them on time.
Missing out on any installment can have an adverse effect on your credit. Therefore, make a point to not miss a single of them.
It is another effective loan management tool that is available for Canadians. A debt consolidation loan combines all the loans you have taken. Thus, instead of having to pay multiple installments in a month, all you will have to do is to make a single payment.
Some people believe that by getting this loan, the score gets negatively affected. However, this is not the case. As a matter of fact, it can help to improve the score. This is only possible if the installment is made on time.
Make Additional Payments
If you have extra money, instead of spending it in an unproductive way, it is advised to use it for making additional payments so that loans could be repaid prior to their due dates. This can prove to be helpful in becoming debt-free sooner.