There is number of reasons why people prefer to take loan however most of them
are for certain financial needs. However, there are a few who take a loan in order to improve their credit history. Some people just want to create their credit history by taking a loan and then repaying them in a timely manner. You can prefer to choose an unsecured or secured loan. In case of a secured loan, the lender or bank may ask you to submit some of your asset as a collateral. In case, the applicant fails to return the loan then the asset is liquidated and the amount of loan is realized.
Whether you should prefer to take an unsecured
loan or secured loan, it all depends upon your present financial condition, eligibility for a loan, or assets in hand.
Following are a few conditions under which many people prefer to take a personal loan rather than taking a loan with any collateral.
In this situation you need a loan but you do not want to use your asset as collateral. However, if you are pretty sure that you can easily repay your loan very comfortably only then you may consider to use your asset as collateral. If you can consistently repay your loan then it will help you establish yourself as responsible creditor and improve your credit score.
Generally, for any small amount of money, it is not necessary to use your assets as a collateral. Only in such case, where your loan amount is pretty big then people prefer to use collateral. However, if you have a good capacity to pay back your loan then there will be no need of using any collateral.
If there is no hassle in paying back your loan then there is no need to put your asset under unnecessary risk by using it as a collateral. Your papers will remain under the possession of your loan provider. However, sometimes taking unsecured loan may have a negative impact on your credit score therefore you can also apply for a certain secured loan as well.
If you use your asset as collateral then your asset will be locked and remain under the possession of your lender and thus you cannot use your asset under the certain emergency situation. As an example, if you want to sell your property then you will not be in a position to sell it as its paper is in possession of your lender.
In case your credit score is very poor then you may not be eligible for certain loans until or unless you offer your property as a collateral. However, if that is not the case then you are eligible for the personal loan and there is no need for any secured loan.
Quite often you may like to use your fixed deposit or share papers for certain special investment. If these assets remain locked due to secured loan then you cannot make the investment.