Secure vs. Unsecured Loans
Written by: Alan Luong
Essentially, there are two types of loans: secured loans and
unsecured loans. Secured loans are loans in which you pledge
some sort of collateral. The bank may repossess the collateral
if you do not repay the loan according to the terms you agreed
to when you took out the loan.
Unsecured loans are not backed by any collateral. You borrow
money on the strength of your good credit and ability to repay
Revolving vs. Installment Loans
Revolving and installment describe the amount of time you have
to pay back a loan. With a revolving loan, you have access to a
continuous source of credit, up to your credit limit. You repay
only the amount of the credit you use, plus interest on the
unpaid amount. You may re-borrow the principal you've repaid. So
the loan could remain "open" for years.
With an installment loan, you pay an agreed amount, which
includes principal and interest, every month. Each payment
reduces the balance of the loan until it is paid off. There is a
fixed ending date, known as the term of the loan.
Fixed vs. Adjustable Interest Rate Loans
Fixed interest is just that. You and the bank agree to a certain
interest rate and it remains constant throughout the term of the
loan. Fixed interest rates give you the stability of always
knowing what your payment will be, so you can budget
Adjustable or variable rate interest fluctuates. Usually it is
pegged to the Prime Rate - the interest the U.S. Treasury
charges to its best borrowers. When the Prime Rate is high, such
as during a period of inflation, you pay more. When the Prime
Rate is low, such as when the government is trying to stimulate
the economy during a recession, you save on interest. If you
need to borrow during a period of high interest, your payments
will drop once the Prime Rate drops.
Types Of Loans
Auto Loans: A secured loan in which the collateral is the
vehicle you purchase.
Credit Cards: An unsecured loan which allows you a line of
credit against which you may borrow by presenting a plastic card
to the merchant from whom you are purchasing the item. You may
make more than one purchase, up to your credit limit.
Personal Loans: Secured or unsecured loans made for a fixed
Mortgages: A secured loan in which the collateral is the real
estate you buy.
Home Equity Loan: A secured loan for a fixed amount in which the
collateral is your home. In some cases, the interest on this
loan may be tax deductible. See your accountant.
Home Equity Credit Line: A secured, revolving line of credit in
which the collateral is your home. In some cases, the interest
on this loan or a portion of it may be tax deductible. Consult a
tax professional or your accountant.
Home Improvement Loan: A secured loan for a lump sum fixed
amount in which the collateral is your home. The money may only
be spent on home improvements. The interest on this loan may be
tax deductible. Consult a tax professional or your accountant.
(In some areas of the country, a home improvement loan "secured
by the equity in your home" may not be available. In these
areas, an unsecured home improvement loan would be available.)
Student Loan (Stafford Loan) A loan for college expenses
underwritten by the U.S. Government. The loan is granted to the
student. Payment is deferred while the student is still in
Personal Line of Credit: Unsecured loans allowing you access to
funds up to a fixed credit limit.
About the author:
Alan is the site owner of http://www.dezeinfo.com, which is a
loan site that provides you information on payday loan such as
how to get started, where to apply, and how to avoid online loan
Secured Car Loan - If Car Signifies A Second Home To You
Cars – they are your passion, necessity, luxury, earning member. They have speed, they have music, they have curves, they have comfort, they have security, they have safety - they have something for everyone. Secured car loans can realize your car...read more
What Is The Best Way To Pay Off All Of My Debts Using A Free Debt Consolidation Loan?
Between daily expenditures and monthly bills, most people get
bogged down by outstanding debts with high interest rates. When
this happens, they usually don't know what options they have.
Most assume they are on their own unless they decide to...read more
Ten Ways Start-ups Use Venture Leases And Loans To Generate Millions
The rise of venture leasing and lending has created an opportunity for sophisticated entrepreneurs to gain a competitive advantage. Savvy entrepreneurs are using venture leases and loans to generate millions of dollars for shareholders by leveraging...read more
Return to Home