Secured Loans Are different From Unsecured Loans | Finance Monster

With the economy in the shambles that it is in today many people are opting to obtain loans to help with many different financial situations.? From buying a home to buying a car to consolidating many of their debts there are many different kinds of loans that are available to borrowers to help with the financial needs of life.

Secured Loans

One of the most popular types of loans that are available to borrowers today is called a secured loan.? These loans are easy to obtain and often do not require a credit check because there is collateral involved. These loans come with low interest rates and are relatively easy to receive because the collateral secures the loan.

When speaking of collateral the definition would be when a borrower is trying to obtain a loan and they are told that it needs to be a secured loan.? The lending institution would hold the collateral until the loan is paid off in full.? Often times the collateral will be in the form of personal property.? This personal property can be in the form of an automobile that you own the title to or a home.? Some people have even used jewelry or stocks and bonds to secure a loan.

There is a high risk to using personal property as collateral on a loan.? The risk is that if you were to default on the unsecured personal loans where personal property is used you will take the risk of losing your collateral to the bank as payment for your loan default.? The bank will then become the rightful owner to the property and can use it as they wish to pay for the loan and get their money back.

The advantage to having a secured loan is that the interest rate is much lower than on an unsecured loan.? Also obtaining the loan is much easier.? There is often no credit check to be had.

Unsecured Loan

The idea of an unsecured loan is to receive a loan with no collateral attached to it.? However this loan can be really difficult in this day and age to receive because lenders do not want to take the risk of not being paid back.

To help ease the risk of not being paid back the interest rate on an unsecured loan is very high.? Many borrowers will find that the interest rate is often in the double digits.

The other disadvantage to applying for an unsecured loan is the fact that your credit will definitely be checked.? In order to be approved for an unsecured loan you will need to have superb credit history.? Without this history you will more than likely be rejected for this loan.

Conclusion

Whether you are applying for a secured or an unsecured loan you should know the differenced between both types of loans for people with bad credit before deciding what loan to receive.? Each has its own benefits and disadvantages just as each borrower has their own financial situation that they need to be careful to help with also.

Source: http://www.financemonster.net/secured-loans-are-different-from-unsecured-loans/

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