Many each day look to their bank or credit union for a secured or unsecured loan. A secured loan is a loan where you, the borrower, offers your car or home as collateral for the loan. This then becomes a secured debt which is owed to the creditor who gave the loan.
On the other hand, an unsecured loan is a loan that is given and supported by how credit worthy the borrower is instead of any kind of collateral. To be approved for some unsecured loans, a borrower must have high credit ratings. Banks and credit unions and some online lenders offer secured loans. Unsecured loans are provided by certain banks and credit unions, as well as some online sites. This may also include peer-to-peer lenders.
Keep in mind; types of unsecured loans are lines of credit, student loans and credit cards. An unsecured loan is enforced by a contract that is signed by the borrower and the lender. Most importantly, because there is no collateral, obtaining an unsecured loan is dependent on a person’s credit score and income. Because the lender is taking on more risk, the borrower will pay a higher interest rate.
If you are in the market to buy a home, you will need a secured loan. Mortgage loans are always, without exception, secured by real property. Another type of secured loan is a car loan because a car loan uses your car as collateral. Some may question which is better, a secured loan or an unsecured loan?
This question can be answered by the borrower stating what he or she will use the loan for. Pros for secured loans are: mortgage interest is tax deductible, interest rates are often lower and repayment terms are longer. Cons of secured loans are they take longer to get, there is more paperwork and if you default on the loan, you could lose your house or car.
However, with this kind of loan, you may qualify for larger loans than unsecured loans. Facts you need to know about unsecured loans are; rates are higher, repayment terms are often shorter, you may not qualify and interest is not tax-deductible.
However, the Finance application process is faster. In addition, there are no restrictions on how you use the loan. Also if you can’t pay back the loan, there is no foreclosure or repossession. Loan amounts are smaller. Most importantly, unsecured lines of credit such as a credit card can be used and paid off on a continuing basis.
Most importantly, before you take out any loan, make sure that you understand completely what you are agreeing to. In addition, be careful not to borrow more than what you can afford to pay back. Loans that go unpaid can destroy your credit score and cause untold problems with your finances.
Tips on getting a secured loan are first choosing the right kind of loan. Keep in mind; a secured loan is a great way to use the equity in your home to finance large expenditures. However, a secured loan taken against the equity in your home is good only if you have enough equity to meet your financial needs.
Another tip is to get a credit report. Any lender with his or her salt will look at your credit report to see if you are a good and dependable borrower. Another important step is to complete your loan application correctly and in a timely manner. An incomplete application will slow down and potentially jeopardize the loan process.