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The following is a guest post. Enjoy!
Good examples of unsecured loans are signature loans and credit cards.. Banks and credit card companies are granting you a line of credit in hopes that you will repay the balance. The good thing about this is that it makes it easy to build credit. The only bad part is that the bank could find itself on the hook with little recourse in the event of a default.
Personal loans are an example of a loan product that can be either secured or unsecured. It is important to know this in case you need help choosing a personal loan. Secured loans are far less risky for banks to make since they know they have an asset that they can repossess. The lender can regain possession of the asset and sell it to recoup some of the money that was loaned out.
How about you all? What types of loans have you taken out in the past? Have you used any of the types of loans mentioned above? Share your experiences by commenting below!
Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.
- @ Unsecured loans –
- It’s important to note that since unsecured loans expose the banks to a significant amount of risk, they must be compensated for this increased risk/return ratio by demanding a higher interest rate.
- This is the exact reason why the interest rate on credit cards is higher than many types of secured loans. It’s all about that risk/return ratio!
- @ Using secured loans to build credit –
- In a previous post, I’ve discussed how I (and you as well!) can successfully use a secured personal loan in order to start building a credit history. This especially works well if you are younger and don’t have established credit already.
- In my case, I secured the personal loan with a CD that I took out from the same bank with which I took out the loan. This enabled me to keep the interest rate low on the personal loan.
***Photo courtesy of http://farm4.static.flickr.com/3082/4557765121_17d83c918f.jpg