Submitted by Martin Martinez
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Terms like unsecured and secured loans rings a bell to those who have been on the lookout for a loan. Do you know the difference? Do you know which type of loan that you need? Are you aware of the type of loan you would qualify for?
Unsecured And Secured Loans: What Are They?
It's difficult many times for the average consumer to wade through all of the terminology and have a real idea of what they need. It is possible to break secured and unsecured loans into simple terms for your understanding.
Secured and Unsecured Loans: What is What?
Unsecured loans do not need to be secured by anything, such as your home. With these loans, the lender believes that you will be able to repay the loan amount as promised. Unsecured loans are not difficult to come by, but you do have to have a good credit history, a low debt to income ratio, and you need to be able to provide your financial stability.
There are various types of unsecured loans such as personal loans, student loans, personal lines of credit, and even some home improvement loans.
However, Secured loans require you to secure the loan with something, such as your home or your car, to the lender. What this means is that you are providing collateral to the lender, which means if you don't pay they have rights to this object. Secured loans are more common as many people don't have the credit or the funds to get an unsecured loan and for many these loans are more appealing because they feature lower interest rates.
Lenders feel assured with these type of loans because they have security in the fact that you will repay. Some examples of secured loans are home equity loans, home equity line of credits, auto loans, boat loans, home improvement loans, and recreational vehicle loans.
The most suitable loan for you depends on your requirements while hunting for one. If you just need a personal loan for a couple thousand dollars to pay off a couple medical bills you may be able to do an unsecured loan if you have a decent credit history and you have a low debt to income ratio.
Secured loan is the correct loan if you are looking to buy a home. This doesn't mean that you need to put up collateral to buy the home, the home is the collateral. What this means is that if you don't pay on the loan than you lose the home.
Same goes for a car loan, for a new car or used car. When you buy the car with the loan you are securing the loan with the car, agreeing that if you don't pay the loan you will have the car turned over to the lender.
Secured and unsecured loans are flexible in that they lend themselves to different things. In most cases those life changing purchases such as homes and cars are secured and everything else may fall under unsecured if you have the credit history to back it up. Obviously, there are pros and cons to both types of loans. Its you who needs to choose the best suitable for you.