Understanding the ups and downs of unsecured and secured loans
Florida (OPENPRESS) June 1, 2012 - It's no secret that when you take out a personal loan, it's a major undertaking, particularly if it's for a large amount. Not only do you have to think about the interest rate, but you also must consider the terms as well. And you can't ever forget about the impact not repaying your loan will have on your credit.
There are two basic types of loans: secured and unsecured. No matter what your circumstances or needs, there are distinct advantages and disadvantages for each of these loans.
For a secured loan, the outstanding characteristic is just that - it is secured. This means in order to obtain the loan you must put up collateral. You could forfeit your property or other asset if you fail to repay the loan. More often than not, people use their homes as collateral.
There are, however, advantages to secured loans. In most cases, if you are willing to risk collateral, you can borrow more with a secured loan. You can also spread your payments over a longer period of time, and interest rates are generally lower. And even with bad credit, you can very likely get a secured loan.
With unsecured loans, there is no collateral required, but you will find that the amount you can borrow is lower and the repayment period is shorter. You will also find much higher interest rates. The lending criteria for unsecured loans is often much more stringent - it is based on your credit history and level of income.
The advantages of an unsecured loan are that you don't have to risk your home or other property if you default on the loan. Lenders cannot come after your home or other property if you struggle to repay it, but you can find yourself in court if you fail to repay according to terms. This is often how lenders of secured loans pursue repayment.
Even with higher interest rates, unsecured loans are still much more affordable than credit cards for when you need a small-amount loan. This will enable you to save a lot of money - money you would have paid to a credit card issuer can instead by saved or used to pay off the loan much faster.
Whatever your situation, you can find both the loan and the lender that are right for you. You can often find lenders online, and the application process found there is quick and easy, and you can find out in a matter of hours, in some cases, if you have been approved.
But a word of caution: Do your homework. Thoroughly read any and all documentation, and make sure you understand the terms before you sign on the dotted line.
