Loans: Which Type Is Right For You?
Loans: Which Type Is Right For You?
Loans: Which Type Is Right For You?There are two main types of loans; secured and unsecured. Secured loans are loans that will take away assets in order to pay for the loan if you are not able to pay back the loan. The assets are agreed on ahead of time, but they must be equal in value to that of the loan amount.
Unsecured loans are loans that you basically promise to pay back, and the only thing they have is your legal word that you will pay it back. You will not lose any assets if you do not pay back the loan. So, why would you choose a secured loan over an unsecured loan? The answer is simple; interest.
With an unsecured loan, the interest will generally be much higher since a higher interest is the way lenders protect themselves against those they feel may not pay back in full what is owed to them. They especially fear lending large amounts of money to those with bad credit, or even no credit at all, so you can guarantee that on an unsecured loan, if you have bad credit or no credit, you will be paying a very high interest rate. If you have bad credit or no credit, you may want to consider a secure loan if you feel you will be able to pay off the loan. That way you will save a lot of money in interest.
If you already have very good credit, and are able to get a very good interest rate on a loan, then an unsecured loan may not be that bad. If a major ongoing medical emergency happened where you lost all your money, or you were to lose your job, at least you would not be at risk of losing your assets if you were not able to pay the loan, such as your house or car. However, with an unsecured loan, interest can continue to accumulate if you do not pay the loan.
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