You never know what life will throw your way and sometimes you may not have the finances you need and find yourself in need of a loan. There are several different types of loans that you can apply for but they usually fall under two types of loans secured and unsecured.
Based on your credit you may be able to get one over the other but there are several factors that go into whether you are eligible for a certain type of loan.
A secured loan is one that is protected by some type of asset or collateral.
For example you are putting something you own up as collateral to take out the loan. This is most commonly a home or a car. Secured loans are usually taken out when a larger amount of money is needed which is why personal property is usually put up as collateral. Secured loans usually offer lower interest rates and have a higher limit as to what you can borrow. They usually also have longer repayment plans.
This is because of the collateral that you are offering in exchange for the money it gives the lender security in knowing that you will agree to the terms and conditions of the loan. If you cannot make your payments then they can take what you used as collateral to make up for what you still owe on your repayment.
Another type of loan is an unsecured loan. These are loans that are usually for smaller amounts of money and that have higher interest rates. They can be a personal loan or a student loan. A smaller type of unsecured loan is known as a payday loan. A payday loan is where an individual borrows a small amount of money with a very high interest rate.
The individual borrowing the money writes a post-dated personal check of the amount that they want to borrow in exchange for cash. This is held by the lender usually until the borrower’s next payday.
The main difference between an unsecured loan and a secured loan is that the lender is taking more risks when it comes to an unsecured loan.
There is no collateral when you take out a personal loan or a payday loan so that means the lender has nothing to cover them if you default on your loan.
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Depending on what your borrowing needs are you can either apply for a secured or unsecured loan based on the amount of money you need to borrow and if you have property to use as collateral.