« Learning About Loans

March 5, 2010

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There are still a lot of people who don’t know how they can get loans or how it could serve them. Many first time borrowers or those who have acquired various loans have either experienced financial relief or financial burden from loans.

The two forms of loans vary in policy, payments and fees, and security. Loans that insist on collateral are branded as secured loans while loans that don’t are identified as unsecured loans.

Secured loans are granted to borrowers only if they guarantee an asset like their home. This is a type of assurance where lenders are secured because the borrower’s property will substitute any sum that is lost if the borrower fails to pay off the entire loan. Regardless of the borrower’s property is secured, any type of funding that is needed can be easily covered since secured loans present a much higher amount of money and interest rates are much lower.

Apart from real property, other forms of secured loans need other type of property as its collateral. In a mortgage, the house is technically both owned by you and your lender. The same principle applies to secured car loans only this time the guarantee is the car.

Both lender and borrower are also protected with secured loans particularly mortgage loans. While the collateral is the house, borrowers hold what is known as a warranty deed. Homeowners paying their mortgage are protected by this warranty from having their homes repossessed while they are still paying the mortgage. Meaning lenders who hold the trust deed will not be able to touch it unless the borrower fails to pay the remaining balance on the mortgage. A trust deed’s purpose for lenders is to give them the right to repossess the property from a borrower who defaults.

Unsecured loans can be granted to borrowers without them pledging any of their assets but the amount customers can make use of is very limited compared to the sum offered by secured loans. There are also other types of loans that are sub-categorized. These are personal or consumer loans and business or commercial loans.

Borrowers of unsecured loans have a lesser concern in terms of property repossessions because they don’t have to guarantee anything at all. However, since lenders have no form of security against borrowers, they get back by adding additional charges and a higher interest rate. Granting of credit cards, personal loans, etc. have become harder nowadays and the basis of granting or declining unsecured loan requests is by looking at the borrower’s credit rating. Occasionally lenders also ask for some form of security on the borrower’s property especially if the unsecured loan comes in the form of a business loan. These securities come in the form of a second lien on the borrower’s home, co-signer, or surety.