Borrowed Money Can Be Secured or Unsecured
Jul 5, 2009 Mortgages
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The two general types of loans are often categorized as “secured” and “unsecured” loans. There are various other types of methods for borrowing cash but all those different financing vehicles can actually be categorized into one of these two classes. When you begin researching personal financing options you’ll quickly learn that there are different ways to borrow cash for all sorts of things that you need money for.
Unsecured loans are good for smaller purchases which you can pay off quickly. Unsecured loans are financing vehicles which are given to you based on your credit score and not based on any single possession you own. Your credit score is really a measure of your expected ability to pay off what you’ve owed in the past. If you have always paid your debts on time then you probably have a pretty good credit rating. Most credit cards are really considered to be an unsecured type of financing.
When you finance a car or buy a house with a mortgage (which is a kind of secured loan) the bank technically owns what you bought until you’ve paid off the loan amount with interest. Secured loans are a kind of loan in which the lending institution has some sort of collateral or payment to hold until you pay off the debt. If you default on your loan then the lender can take your collateral and sell it in an effort to regain some of the money you borrowed.
There is often more paperwork associated with secured loans because they are so much larger than most unsecured loans. Common secured loans include home mortgages, new car loans and most house remodeling financing options. Secured loans such as home equity lines of credit generally have a lower interest rate, which makes paying them off easier over the life of the loan. Depending on your tax situation you may even be able to reduce the yearly income tax that you owe.
No matter what type of loan you consider remember that you do have to pay the money back and you will be paying interest on the money that is owed. Be careful and be sure you can really afford the monthly payments before you go forward with your loan. Many expensive projects are changed when people finally begin to understand how various financing options work.
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Tags: Banks, borrowing, finances, financing, loans, money, Mortgages, Secured Loan, Unsecured Loan
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