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Thursday, September 12, 2013

Bad Credit Loans - Secured Vs Unsecured


Bad credit loans have become immensely popular due to the fact that there are many Americans out there with a less than perfect credit score and history. The options available are infinite. Nowadays, a person with bad credit can obtain the necessary funds to buy a new or used car, a house, improve his home, go to college and start a new business. There are also many alternatives when it comes to loan terms: interest rates and repayment plans are as varied as the loan options. As you can see, the sky is the limit.

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As unlimited as the options are, there are two basic subgroups to choose from. This two groups offer different things which should be looked into carefully before making any decisions. In this article you will find the basic information on both subgroups. Hopefully, this will help you to make a more informed decision based on what will be more suitable according to your particular situation.

Secured Loans

When a person has bad credit, it is usually easier for him or her to obtain this type of loan. Why does this happen? It is simple. In a secured loan, the borrower receives the money by pledging an asset of his property as a collateral for the loan. This asset can be a car or a house, but it is frequently the borrower's real estate property. The lender runs very few risks, so in case the borrower defaults on the loan, he will not loose much. As a matter of fact, the one who will loose a lot is the borrower as his asset will most likely be seized.

Most people think that only because the lender does not run many risks, the terms will be extremely favorable. This is not always so. What is not really known is that the interest rate on this loan is more often than not variable. If the market stays constant, perfect. If not, your rate may up and your pocket will suffer. Not everyone has the means to face this changing situation.

Another important thing to take into account, is that while secured loans usually offer higher sums of money, the repayment period is frequently stretched over many years. You can find yourself with a loan with low monthly payments, but lasting 20 years or more.

Unsecured Loans

Unsecured loans might sometimes be harder to qualify for due to the fact that the lender will be facing higher risks. This adds up to the fact that bad credit applicants usually have a hard time qualifying for any loan. The key is never to despair. There are thousands of reputable lenders out there, and sooner or later, you will find the kind of finance you need. It is only a matter of time and patience.

This type of loan might offer lower amounts stretched over a shorter period of time, but it is the best option for you if your financial situation is not what you would call steady. Fixed interest rates will be the best option as you will know for sure what will pay every month and this amount will not vary in the least.

Remember that secured loans are not always the answer, do not make rushed decisions only because you are not being approved for unsecured loans as your assets are at risk.

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