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Secured and Unsecured Loans: Which to Get?

March 30, 2012 | Comments: 0 | Views: 133

Obtaining a loan is not always as easy as it seems. Considerations have to be made. Research has to be done. If you rush things, it can only lead to financial disasters. Generally, you will only have two choices, either secured loans or unsecured loans. A secured loan is one you obtain with a collateral-a property like your home or your car. An unsecured one does not have any collateral involved.

When deciding what type to get, consider the following:

1. The amount you want to borrow

2. Interest rates

3. Your monthly income

4. Credit report

5. Reputation of the lender/provider

An unsecured loan is usually available only for much lower amounts than those that secured ones offer. Lenders are not willing to risk too much to let you obtain money without some security. If you borrow a huge amount of cash, you are required to show something to them as their safety net in case you do not pay off the debt.

What if you have bad credit? It's not impossible to obtain even secured loans if you have a bad credit, but you may have a hard time finding a provider that can offer you a nice deal. Many unsecured loan providers allow people with a bad credit to obtain loans, though. Bad credit loans can come with higher than normal interest rates-that has to be expected.

For small amounts of cash needed, get an unsecured loan!

The major advantage of an unsecured loan is that there is little, if any, catch. Unsecured loan providers will give a brief repayment schedule, which is understandable, considering you are not surrendering any property as collateral. At the same time, small amounts of loan are expected to be paid off within a brief timeframe. The amount you will be paying monthly may be high.

Secured loans may have lower monthly payments, but that is because the payment scheme is spread for ten or twenty-five years. In the long run, you are paying huge amounts of money including the interests.

Compare the total repayable amounts.

This is a good advice that every borrower should follow. Get a calculator and compute the overall cost of the loans. Expectedly, an unsecured loan will cost much lower. If an unsecured one can suffice your urgent money needs, get it. If not, look for a lender that offers a nice deal with a secured one.

Advice to Borrowers

One of the common problems of borrowers is piling debts. Some people take many unsecured loans without prudence. Soon they realized they are already flooded with demand letters. Many people borrow money again from another provider or perhaps the same one, to pay off their debt. This is not a good practice. It can bury you in overwhelming debts.

An unsecured loan may be obtained for debt consolidation, which is a practice of borrowers who have debts from many lenders. A borrower can borrow money to pay off all other debts. This way, he or she would only deal with a single loan, which is better than multiple ones with several due dates.

Unsecured and secured loans have their individual pros and cons. Depending on the situation, one may be more appropriate than the other. For instance, if you are only redecorating your kitchen, you may need quick cash that you can obtain via an unsecured loan. If you want to have a new house, a secured one would be more suitable.

For more information about bad credit loans and unsecured loans, visit our website

Source: EzineArticles
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