What are loans and how do they work? This question can be confusing for lots of people. At the same time, the vast majority comes to a point in their life where they need a loan, whether they use it to purchase a new house, to buy a car or to start-up a business. So before you get into a financial commitment, be sure you understand what expressions like secured bank loan or unsecured loan rates mean, in order to get the best deal and avoid costly mistakes. On this site you will take a fast course on loans. You will find out about different types of loans available on the market, which one suits better to your needs, and several suggestions and money saving tips.
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A brief Introduction: What are secured and unsecured loans?
When searching for a loan, you will most likely hear about this terms: secured and unsecured loans. These are the main types of loan. Let’s find out a little more about each one:
A secured loan is a loan that is backed up by some asset or collateral belonging to the borrower (house, car, real-estate). This means that the borrower guarantees the money he loans with a property of higher value and in case the borrower defaults on the loan (he fails to repay), the asset will be forfeited to the lender. Because the lender takes less risk, secured loans provide larger amounts of money than unsecured loans,lower interest rates and better terms and conditions.
Examples of secured loans:
Home Equity Loan
Cash secured loan
Auto Loan (New and Used)
Home Improvement Loan
Business secured loan
Some of the advantages of secured loans:
- they are much easier to take, because the lender is covered
- you can take bigger amounts, depending on the property brought in as security (up to 75%)
- lower monthly payments
Disadvantages:
- you risk losing your property (house,car) if you fail to repay the loan ;
- long repayment period (up to 30 years); even though this brings low monthly payments, it is also a financial burden with a very long life;
Before you take a decision, calculate a budget to make sure you can repay the loan. If you don’t know how, ask someone for help. Then you should really consider insurance for the unexpected events (accident, illness, temporary or permanent incapability). These are usually offered by the lender at the time of the loan, but they can be expensive, so you could get a quote from an independent financial adviser.
An unsecured loan is a loan prepared for people who don’t own a property to guarantee the loan. Since the loan is not secured by any collateral, it’s more difficult for the lender to get the money back if the borrower cannot repay, this resulting in a increased risk. Therefor the income of the borrower and his credit history are very determinant for the amount of money to be lent, the rate and the terms. That is why the loan amount and conditions vary from person to person.
Types of unsecured loans:
- *personal unsecured loan
*unsecured business loan
Benefits:
- no need for a back-up
- shorter repayment periods
- does not always involve credit checking
- flexible rates
Disadvantages:
- may be difficult to get with a bad credit rating
- you can take only small to medium amounts
- bigger interest rates
Whatever loan you decide to go with, don’t forget to keep an eye on the rates!
