The two main types of loans include secured and unsecured loans. Unsecured loans refer to those loans that have no collateral associated with them. Secured loans are backed by collateral.
Collateral refers to a property or an item, such as a car, that acts as a guarantee for loan repayment. If an individual is unable to pay back the loan, the lender in some circumstances may be able to confiscate the property.
In general unsecured loans will have a higher interest rate associated with them because the lender is taking an increased risk when loaning money to you. Secured loans have a lower interest rate due to the fact that the lender’s money is backed by a property, which he can seize if you persistently fail to pay. Some types of secured loans include car loans, home mortgages, boat loans, etc.
One way to consolidate your loans and to reduce the monthly payment amount is to change your unsecured loans to secured loans. This can help reduce the burden on debt ridden individuals.
Unsecured loan are considered less risky loans for the borrower due to the fact that the lenders can not confiscate their car or house if they fail to pay. Secured loans are riskier loans because they are backed by collateral.
Before approving an unsecured loan, lenders may conduct a credit check. For example most credit card companies require a credit check before they approve your application. Your credit will determine whether you are an acceptable risk to the lender or not. They will check how you have handled any previous loan repayments. Also your income and expenses may be taken into account.
Unsecured loans can generally be approved and delivered quickly. There is no collateral to check or appraise. The approval time will depend on length of time it takes to get your credit history checked.
Unsecured loans can be used to finance many different things, such as home improvement projects, vacations, medical expenses, college expenses, etc. There are certain things you should consider before acquiring any type of loan, such as the APR, repayment period and reputation of lender. This can help you judge whether you are getting a good deal or not and whether you will be able to make the monthly payments.