Is a Secured or Unsecured Loan Best for You? There are many reasons why you may be considering taking out a loan. These could include purchasing a new vehicle, taking a dream vacation or going back to school. However, the world of loans can be confusing as there are many different types available – all of which you will want to ensure go through a licensed moneylender. There are many people who provide loans, however – as with anything, some are more legitimate than others. A licensed moneylender needs to comply with business regulations and codes as determined by the legal system. These regulations ensure a legitimate business practice and consumers can trust that they will receive the service for which they are paying. Secured loans are backed by personal assets; otherwise known as collateral, such as your house. Should you default on your loan, the bank takes possession of your property and may sell it off to recover the loan amount. A common example of a secured loan is a mortgage; should you default on your loan, the bank can take possession of your home through the foreclosure process. This process allows them to sell your home in order to recover their loan costs. Unlike secured loans, unsecured loans (e.g. payday loans, personal loans) require no upfront collateral as the lender relies on the contract terms to enforce loan repayment. The choice to obtain an unsecured or secured loan depends on your level of comfort and loan purpose, though you will likely be able to borrow larger sums through a secured loan.
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