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To Secure or Not Secure That Loan

Posted March 30th, 2010
by PersonalLoans.org Staff

There is a lot to consider these days when it comes to personal loans.  How much do you need, what are the terms you are looking for, what are you already obligated to repay, and why do you really need a loan?  To add the whip cream to the top of this loan coffee, there are several loan types.  Two of the biggest types will be a secured or unsecured loan.  Let’s take a look at these two types of loans and which one might just be best for you:

Unsecured loans

An unsecured loan is a loan that lenders believe you can pay off on your own financial merits.  There is no collateral that you are putting up when you apply for this type of loan.

Unsecured loans often come in smaller amounts and are quite possibly the most common type of personal loan.  The amount size will vary depending on the lending institution.  The repayment of these loans is also usually on a short-term basis.  Lastly, the biggest downside is usually the interest rate.  Unsecured loans often carry a higher interest rate due to you not having to put up that vintage record collection as collateral.

Secured loans

A secured loan is a loan that is backed by some sort of collateral.  This collateral is something of greater value than those old Kiss 45s that you have in your basement.  The collateral is often the house that those 45s reside in.

Payment and interest terms are also vastly different from the unsecured loan.  Often you are borrowing a larger amount of money.  You are not going to get a secured loan for that TV you have your eye on.  The repayment of these loans is often measured in years greater than five.  It is not uncommon to see a secured loan hit the ten-year to thirty-year repayment plan.  The interest rates for secured loans are often smaller as well.

Now that we have hit what the differences are, what items often fall into these categories.  Here are a few examples of what products will fall into what loan type:

Unsecured loan products:

  • Personal loans
  • Smaller educational loans
  • Home improvement loan

Secured loan products:

  • New home mortgages
  • Recreational vehicles like boats and off road vehicles
  • Larger, long-term educational loans

A word about home equity loans

You will notice that some items fall into both categories.  Educational loans are one of the more common loans to fall into both categories.  The reasoning can simply be broken down into the duration of the loan and what you are using to get the loan.  If you put your house as collateral, you are going to get a lower interest rate than if you just apply for the loan.

Knowing what kind of loan you are going to apply for will be a big advantage to you.  You will now know that you cannot get ten year financing on that shinny new TV that you want.  A little bit of research on your personal loan can mean the difference of a few thousand dollars in the long run.

Photo via King Chimp

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