SHORT-TERM BORROWING

Short term personal loans are loans that financial institutions give to people needing
immediate cash. There are two main types of short term personal loans: secured and
unsecured. Both types generally have higher interest rates than long-term loans;
however, since they have a shorter repayment term, borrowers can repay the loan more
quickly.

Secured Loans

A secured loan is when the borrower puts up some asset (e.g. home or car) as collateral to back
the loan. It is called a secured loan because it poses less risk for financial institutions; for
example, if the borrower defaults on payments, the creditor can repossess the asset to satisfy
the debt.

Secured short term personal loans are a great way to acquire quick cash. By putting up
collateral, the financial institution will be comfortable lending you more money at a lower
interest rate.

Many people use secured loans not simply for emergency cash, but for home equity loans, debt
consolidation, second mortgages, or home equity credit lines.

You may qualify for a secured loan even if you have poor credit, as long as you place a valuable
asset as collateral.

Secured loans are loans that are backed by an asset, like a house in the case of
a mortgage loan or a car with an auto loan. This asset is the collateral for the
loan. When you agree to the loan, you agree that the lender can repossess the
collateral if you don't repay the loan as agreed.

Unsecured Loans

The same isn't true for an unsecured loan. An unsecured loan is not tied to any of
your assets and the lender can't automatically seize your property as payment for
the loan. Personal loans and student loans are examples of unsecured loans
because these are not tied to any asset that the lender can take if you default on
your loan payments.

What if you are a renter and do not have property to set as collateral? In this case, you
may be eligible for an unsecured loan. Unsecured loans do not require collateral to back
the loan. Homeowners who do not want to put their property up as collateral can also
get unsecured loans.
Unsecured short term personal loans pose a higher risk for financial institution, as they
have nothing to repossess if borrowers cannot fulfill payment obligations. To make up
for lack of collateral, banks charge high interest rates for unsecured loans. If you apply
for an unsecured loan, whether it be in-person or online, be sure to seek the lowest
interest rate you can find. Be aware of fees and penalties associated with the loan, too.

Unsecured loans are also beneficial for people with poor credit scores. Some borrowers
even get an unsecured loan to improve their credit score, as repaying the loan on time
can and will increase your score.

Source: https://www.loan.com/personal-loans/short-term-personal-loans-secured-vs-
unsecured.html
https://www.thebalance.com/how-secured-loans-are-different-from-unsecured-loans-
960032