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The Two Different Types of Loans

07.02.2009 · Posted in Home and Garden Articles

The two basic kinds of loans are often known as “secured” and “unsecured” loans. There are many other kinds of ways for borrowing cash but all those different financing vehicles can actually be categorized into one of these two classes. When you begin looking into personal financing options you’ll quickly learn that there are different ways to borrow cash for all sorts of things that you need money for. nnUnsecured loans are good for small purchases which you can pay off quickly. Even store credit cards are good to use in some cases because the credit limits are low and the introductory rate are often decent. Unsecured loans are loans which are given to you based on your credit rating and not based on any single thing you own. Your credit rating is really a measure of your past ability to pay off what you’ve owed in the past. If you have always paid your bills on time then you probably have a pretty good credit rating. Most credit cards are actually considered to be an unsecured loan.nnWhen you finance a car or buy a home with a mortgage the bank technically owns what you bought until you’ve paid off the debt amount plus interest. If you default on your loan then the lender can take your collateral and auction it in an effort to regain some of the money you borrowed. Secured loans are a type of loan in which the bank has some sort of collateral or payment to hold until you pay off the debt. nnThere is often more paperwork associated with secured loans because they are so much larger than most unsecured loans. Typical secured loans include home mortgages, new auto loans and most house updating loans. Secured loans such as mortgages generally have a lower interest rate, which makes paying them off less expensive over the life of the loan. Depending on your tax situation you may even be able to reduce the yearly income tax that you owe.nnMany expensive plans are revised when people finally begin to consider how different financing options work. No matter what type of financing you consider don’t forget that you do have to pay the money back and you will be paying interest on the amount that is owed. Be careful and make sure you can really afford the monthly payments before you apply for your loan.

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