Secured loans and unsecured loans are the two main types of loans. The difference is that secured loans require collateral and secured loans do not.
The two main types of secured loans are mortgages and car loans. The reason these loans are considered secured is because you are pledging collateral — the house or car you are financing — to secure the loan. This means that if you don’t follow through on the terms of your loan repayment plan, your lender can seize your collateral and sell it to pay off the debt. In the case of a car, the lender will repossess the car. In the case of a home, the lender will go through the process of foreclosing and having you evicted from the home.
Other types of secured loans include business loans that require property, such as machinery and inventory, as collateral; home equity loans; some types of pawn shop loans; and loans from insurance policies.
The main advantage of secured loans is that because they are backed with collateral, the interest rates are lower because the risk is lower to the lender.
Unsecured loans are loans that don’t require collateral, and there are many of these types of loans.
Credit cards are a type of unsecured loan. Every time you use your credit card to pay for something, it is actually a small loan. The only promise of repayment the credit card company has is your signature on a contract. If you don’t pay, the credit card company can sue you, but it can’t seize items you used the card to buy.
Another type of unsecured loan is a personal loan from a bank or a credit union. These loans are difficult to get, because you need a solid credit history and satisfactory proof that you can repay. They also carry relatively high interest rates.
Another type of unsecured loan is a payday loan, also called a cash advance loan. These small loans are easy to get because they usually don’t require a credit check, just a copy of a recent pay stub to prove you have the means to repay the loan. Many lenders require that you give them a post-dated check, but some don’t. The big drawback to payday loans is that they carry high fees, with the industry average being $15 for every hundred dollars borrowed.
retirebyforty> The only loan type we have at this time are secured loans – mortgages. The rates are very reasonable right now and I think it’s not a bad time to borrow to invest in rental properties.