At some point in everyone’s life, there comes a time when there is a need to borrow money. Homebuyers typically do not have hundreds of thousands of dollars lying around to pay cash for a home. Most do not have the thousands required to purchase a car. Others may borrow to purchase furniture, electronics, jewelry, and much more. What many people may not understand is that there are different types of loans. Here is a look at several different options.
A secured loan is one in which something is offered as collateral. The collateral could be a car, a house, or something else of value. There are several different types of secured loans.
A mortgage is used to purchase property. As stated, most people cannot pay the full asking price of a home. They borrow the money to do so and offer the home as collateral. If the homeowner fails to make payments, the financial institution where the money was borrowed can take over possession of the home.
- Home Equity Loan
A homeowner with equity in the home can use it to obtain a loan. As with a mortgage, the home is used as collateral. These types of loans generally offer low interest rates, which is why they are popular. Again, if the borrower fails to repay he or she could lose the home.
- Car Title Loan
A person who owns a car outright can use the title to the vehicle to take out a loan. Embassy Loans is a popular title loan company in Florida that helps qualified borrowers access money very quickly. The car, or truck, is used as collateral to take out a short-term loan.
An unsecured loan is one that is offered without collateral. Unsecured loans are generally based on things like a person’s credit history and are offered in exchange for a signature. Here are two types of unsecured loans.
- Personal Loan
Borrowers can obtain a personal loan from their bank or other financial institution. The bank would examine a person’s creditworthiness to determine whether or not to loan the money. Should a person fail to repay the loan, the lender can sue the borrower to try and recoup its losses.
- Credit Card
Many people may not realize it but using a credit card represents a borrowing of money. When the credit card is used, the user agrees to pay back the amount at a later date. Once again, if a person fails to pay his or her credit card bills, the issuer of the card can sue to recover its losses.