Generally, people apply for a loan when they are short of funds and do not have the resources to get the capital themselves. While the loan requirement can be a small amount or a substantial sum, the need remains to get funding. Usually, people who look for this form of borrowing go to the bank or direct financing institutions(DFI). Loan options are available to individuals, small to medium-size businesses, as well as large corporations.
There are two types of loans one can apply for with a bank or other DFI. One method of borrowing is the secure loan, and the other type is the unsecured personal loans.
Secured loans are a long-term loan or a loan whose tenor is at least 3-6 months. The borrower can approach the banks and apply for a secure loan that can be a substantial amount. Often businesses go for secure borrowing. Any lender who agrees to disburse a secure loan holds collateral or asset of the borrower, which serve as security against the loan. If the borrower defaults, the lender will sell his assets pledged as collateral to recover his money. Since secure loans are safer for the lender, it is relatively easier to get a secured loan at a lower interest rate.