A loan refers to borrowed money. The money borrowed is returned in regular installments for an agreed period of time with interest charges. Sometimes, due to emergencies and other serious problems in certain times of our lives, taking a loan is the only solution to our situation. There are various type of loans and, the repayment of the borrowed money depends on the contract agreement terms and conditions.
In a secured loan, the borrower must offer a valuable asset such as a house as collateral. This means that, in case of default on the outstanding debt, the house is repossessed by the lender. There are many lenders out there willing to offer this type of loan since they are aware that, their money will not be at risk. The interest charged is lower compared to other types of loans but, this will depend with each individual credit rating. The sum of money borrowed compared to the value of your home could also affect the rate charges.
One disadvantage with this type of loan is that, you could easily lead to the loss of your precious home if you are unable to repay your debt. Most secured loans are long-term and the payment terms are flexible. The application processing is also fast compared to other types of loans. Examples of secured loans include; home equity loans, home equity lines of credit, Mortgages and car loans. A secured loan is ideal to persons in need of large amount of money and with a valuable collateral.
If you take an unsecured loan, there is no collateral required. The interest rate depends on the money borrowed, the payment period and your credit score. Banks and other lending companies will also check whether you have a steady flow of income. If you have good credit score, you will have better rate charges compared to another person with a bad credit score, given the same amount of money. The longer the repayment period, the high the interest charges. In case you default on the payment, your lender could use debt collectors or even take lawsuit measures in order to recover the remaining balance. As a result, you could end up loosing more money. If, for example, your assets are sold at a loss to clear the debt. Some types of loans include; students loan, credit cards, personal loan and personal line of credit.
It is advisable to avoid the types of loans with very high interest rates such as the Payday Loan to avoid wasting much of your money. You should always seek advice from reputable banks and lenders before applying for any type of loan. Stay away from Advanced-Fee Loans, they are scums lenders who convince people with serious problems to send some amount of money so that they qualify for the loan, only to disappear after they have received the money.