Mar 22, 2007

Loans

With all the water heater drama, I am so happy we had a line of credit to help us fund the replacement of the broken water heater. With credit however comes responsibility and that is why it is so important to compare loans before you apply for credit or before you accept your terms. Educate yourself, ask yourself "What is it I need this loan for?" and get to know all the different types of loans.

Two main types of loan are secured loans and unsecured loans; let me explain the difference.

A Secured Loan is a loan where the borrower puts up collateral, such as a home or a car where the bank owns the title/deed to your property, if you default on your payments, the bank can repossess your property, or evict you from your home. Types of secured loans are home mortgages, auto loans, home equity loans, or a secured credit card where you have to put up a cash deposit. These loans typically have a lower interest rate than unsecured loans.

Whereas an Unsecured Loan is a loan where no property is put up for collateral and if you default on payments your account can be sent to collection, you can be taken to court where you could possibly be ordered to liquidate your assets. Types of unsecured loans are signature loans, student loans and credit cards. These loans typically have a higher interest rate than secured loans.

When you shop for a loan, make sure you know what you are getting into, and that you are getting the right loan to fit your specific needs.

*This is a sponsored post.

1 comment:

Eric Van said...

I am a perfect example of what NOT to do. I started a business and was so gung-ho about it's succes that I really let risky loans get out of control-- unsecured. Not just risky, but high interest.

There are ways to use the "0 interest" loans from credit card companies to your advantage, but be VERY careful!