There are several types of loan available and finding the right type of loan for you can be challenging. You need to consider your personal circumstances and the purpose of the loan. Whether you own a home, your income and any existing debt will all have an impact on the type of credit available.
A secured loan allows the borrower to submit an asset as collateral for the loan. The most popular source of collateral is a home, but other assets such as cars can be used for some secured loans. The asset must hold greater value than the loan amount.
If the borrower defaults on the loan, the loan provider takes possession of the agreed collateral and will use this to settle the debt. If the asset does not raise sufficient money to settle the loan, the provider may pursue court action for the remaining balance.
Secured loans often offer lower interest rates than unsecured loans, as the perceived risk is lower. However, the interest rate offered will depend on your circumstances. This type of lending is also often available over a longer repayment term.
Unsecured loans do not require any source of collateral. This type of loan is considered more favourable for borrowers as they do not have to submit any assets. Unsecured loans are usually offered over shorter repayment periods and the sum of money loaned tends to be lower than a secured loan.
Unsecured loans are often sought for the purpose of home improvements, holidays, or a family wedding. They cannot be used as a mortgage and interest rates tend to be higher than secure lending, as there is no collateral in place should a borrower fail to repay the loan.
There are penalties for failure to repay an unsecured loan. Lenders can take a customer to court in a bid to recover the outstanding balance and through this process the borrower could face bankruptcy.
Mortgage loans are a type of secured loan that are specifically for the purpose of purchasing a home. Mortgages are secured against your property and are typically for much higher amounts than the average personal loan. Mortgages offer long repayment periods, with twenty-five years being the most popular term.
With mortgage lending the borrower usually has to pay a deposit of at least 10% of the value of the home and the mortgage makes up the remainder of the funds necessary for the purchase. As mortgages are secured, you are at risk of losing your home if you are unable to meet the repayments.
A debt consolidation loan offers the opportunity to include several debts under one loan with one repayment. This can be useful for anyone who finds it difficult to keep track of several different monthly repayments and can also be beneficial for anyone struggling to meet their monthly commitments.
A consolidation loan can help by allowing you to increase the loan repayment term. This usually means the monthly repayments will be lower, but the overall total interest paid will be higher. Depending on your circumstances this type of loan may offer a better interest rate than some of your smaller debts. Therefore, by lowering your repayments, this type of loan can allow you to stay current with your debt or pay more than the minimum.
Whatever type of loan you are considering, it is important to look at your options and read the terms and conditions before entering into any financial agreement.
Taking out a loan may help you with financial problems, however, you may also end up in debt. If you are concerned about mounting debts, visit IVA experts and find out about IVAs.
I'm Louida from Atlanta, Georgia and I'm a mother of two daughters, and a full-time blogger/influencer.
I love helping others learn how to start working from home online free to help supplement their current income.
I also blog at Productreviewmom.com
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