secured loan vs Unsecured loans

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lewiskelly
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secured loan vs Unsecured loans

Postby lewiskelly » Tue Jan 29, 2013 11:36 pm

What is the difference between secured loan & unsecured loan and which one is best?

kombat
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Re: secured loan vs Unsecured loans

Postby kombat » Wed Jan 30, 2013 5:44 am

A secured loan is "secured" against some sort of collateral. If you stop making payments, they can take the collateral and sell it to recover the rest of the loan. Thus, it represents less risk for the lender, so secured loans typically have lower interest rates. Examples of secured loans would be a home mortgage or a car loan.

An unsecured loan is just a promise to repay. If you stop paying, there's nothing they can take. All they can do is sue you, and even when they win, you might not have anything worth taking. Or you might declare bankruptcy and they'd never get their money back. Thus, unsecured loans represent a higher risk for the lender, so they typically have higher interest rates. Examples include a signature line of credit, or a credit card.

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Re: secured loan vs Unsecured loans

Postby Tightwad » Wed Jan 30, 2013 7:21 am

kombat wrote:A secured loan is "secured" against some sort of collateral. If you stop making payments, they can take the collateral and sell it to recover the rest of the loan. Thus, it represents less risk for the lender, so secured loans typically have lower interest rates. Examples of secured loans would be a home mortgage or a car loan.

An unsecured loan is just a promise to repay. If you stop paying, there's nothing they can take. All they can do is sue you, and even when they win, you might not have anything worth taking. Or you might declare bankruptcy and they'd never get their money back. Thus, unsecured loans represent a higher risk for the lender, so they typically have higher interest rates. Examples include a signature line of credit, or a credit card.

Bingo!

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Re: secured loan vs Unsecured loans

Postby stannius » Wed Jan 30, 2013 9:57 am

If the interest rates were the same, then an unsecured loan would be better, because it's less risk for you (and thus more risk for the lender, which is why the interest rates aren't going to be the same).

If you plan on not paying the loan back, then an unsecured loan would be better. Note that taking out a loan with the intention of not paying it back is fraud.

A student loan is an unsecured loan. However, given that a student loan is not dischargeable in bankruptcy, it's actually higher risk for the borrower than most secured loans.

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Re: secured loan vs Unsecured loans

Postby DoingHomework » Wed Jan 30, 2013 8:07 pm

Tightwad wrote:
kombat wrote:A secured loan is "secured" against some sort of collateral. If you stop making payments, they can take the collateral and sell it to recover the rest of the loan. Thus, it represents less risk for the lender, so secured loans typically have lower interest rates. Examples of secured loans would be a home mortgage or a car loan.

An unsecured loan is just a promise to repay. If you stop paying, there's nothing they can take. All they can do is sue you, and even when they win, you might not have anything worth taking. Or you might declare bankruptcy and they'd never get their money back. Thus, unsecured loans represent a higher risk for the lender, so they typically have higher interest rates. Examples include a signature line of credit, or a credit card.

Bingo!

Ditto the bingo

But a minor correction. With an unsecured loan there is no SPECIFIC collateral securing the loan. That does not mean that if you stop paying there is nothing they can take. If I own a car (or house) free and clear then take out an unsecured loan and default, I can be sued as kombat says and the creditor can take the house or car. But the liens will be inferior to those of a secured creditor meaning that if I also have a secured loan on the house or car then the secured creditor is first in line to get the car or house and the unsecured creditor only gets what might be left over. Even with an unsecured loan the creditor can still come after your possessions or get a judgment against your future earnings.

lewiskelly
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Re: secured loan vs Unsecured loans

Postby lewiskelly » Thu Jan 31, 2013 12:31 am

So collateral is must for securing the loan.I got lots of suggestion.And really beneficial for me.

ritambhara
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Re: secured loan vs Unsecured loans

Postby ritambhara » Sat Feb 02, 2013 2:07 am

Secured loans means is secured against a property or other asset. most people have a mortgage on their property.

Unsecured loan means there is no there is no security offered as a guarantee to the lender.
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Re: secured loan vs Unsecured loans

Postby stannius » Mon Feb 04, 2013 6:42 pm

DoingHomework wrote:Ditto the bingo

But a minor correction. With an unsecured loan there is no SPECIFIC collateral securing the loan. That does not mean that if you stop paying there is nothing they can take. If I own a car (or house) free and clear then take out an unsecured loan and default, I can be sued as kombat says and the creditor can take the house or car. But the liens will be inferior to those of a secured creditor meaning that if I also have a secured loan on the house or car then the secured creditor is first in line to get the car or house and the unsecured creditor only gets what might be left over. Even with an unsecured loan the creditor can still come after your possessions or get a judgment against your future earnings.


In theory. In practice, secured loans almost universally have a "fast track" for repossessing the collateral. Whereas with an unsecured loan, they have to convince a judge to place a lien on your property, then they have to convince a judge to seize the property to satisfy the lien. The barriers would be a lot higher.

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Re: secured loan vs Unsecured loans

Postby Tightwad » Mon Feb 04, 2013 6:59 pm

stannius wrote:
DoingHomework wrote:Ditto the bingo

But a minor correction. With an unsecured loan there is no SPECIFIC collateral securing the loan. That does not mean that if you stop paying there is nothing they can take. If I own a car (or house) free and clear then take out an unsecured loan and default, I can be sued as kombat says and the creditor can take the house or car. But the liens will be inferior to those of a secured creditor meaning that if I also have a secured loan on the house or car then the secured creditor is first in line to get the car or house and the unsecured creditor only gets what might be left over. Even with an unsecured loan the creditor can still come after your possessions or get a judgment against your future earnings.


In theory. In practice, secured loans almost universally have a "fast track" for repossessing the collateral. Whereas with an unsecured loan, they have to convince a judge to place a lien on your property, then they have to convince a judge to seize the property to satisfy the lien. The barriers would be a lot higher.

Repossession only happens in the event of default. Creditors must be compensated for taking on the risk.

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Re: secured loan vs Unsecured loans

Postby lewiskelly » Tue Feb 05, 2013 1:49 am

So we can secure our personal property & assets via secured loan.Basically secured loan use for secure money & all business related terms

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Re: secured loan vs Unsecured loans

Postby Mario » Tue Feb 05, 2013 2:49 pm

lewiskelly wrote:So we can secure our personal property & assets via secured loan.Basically secured loan use for secure money & all business related terms


Well no, it's the other way around. The property isn't secured by the loan; the loan is secured by the property.
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Re: secured loan vs Unsecured loans

Postby Swapnil » Tue Feb 05, 2013 10:31 pm

Mario wrote:
lewiskelly wrote:So we can secure our personal property & assets via secured loan.Basically secured loan use for secure money & all business related terms


Well no, it's the other way around. The property isn't secured by the loan; the loan is secured by the property.

This is the correct meaning of security against the loan, loan is secured against the collateral security.
In case of Unsecured loan, the Lender is at much risk of not getting the amount repaid back, it is found most of times in unorganized money market where high rate of interest is charged for giving such loans mostly the "Sahukars" i.e, the Rich people in the villages and rural areas engage in giving this type of loans to the farmers and charge exorbitant rates of interest to exploit the poor farmers.


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