Three mason jars
Give. Save. Spend. Three jars sit on my six-year old’s bookshelf, one for each of those words. It's just one of the ways my wife and I are teaching our children to manage money.
You have many decisions to make when shopping for a loan, and one of them is whether to obtain a secured or an unsecured loan. Whether you are familiar with the terminology of secured and unsecured loans or not, you are probably familiar with the underlying concepts. Secured loans get tied to an asset, like your home or automobile. Unsecured loans are not tied to any specific asset. Understanding these types of loans in more detail can help you borrow money wisely.
What is a Secured Loan?
Lenders often issue loans secured by a specific item of personal property. This item might be a house, a car, a boat, or even stocks or bonds. When property is used to secure a loan, the lender maintains ownership rights in the asset until the loan gets repaid. This means if you fail to repay the loan or otherwise meet the terms of your loan agreement, the lender has the legal right to seize and sell the property in order to repay the loan. That property is sometimes referred to as loan collateral.
With a secured loan, the lender also places a lien on the property. The lien indicates that should you sell the property the lender is entitled to get money to pay off the remaining loan balance before you receive any money from the sale.
The most common type of secured loan is a mortgage, which is secured by the house being purchased. If you stop making your mortgage payments, your lender could foreclose on the home and sell it to pay off the mortgage. If you sell your home, you have to pay off your mortgage immediately.
Advantages of Secured Loans
Disadvantages of Secured Loans
What is an Unsecured Loan?
An unsecured loan does not involve naming any specific property as collateral on the loan. Instead, the loan is issued on the basis of your ability to repay the loan. You might have to provide information about your income, savings, employment, or credit history. Some common types of unsecured loans include credit cards, student loans, and personal loans.
Advantages of Unsecured Loans
Disadvantages of Unsecured Loans
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