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Unsecured Loan Vs Secured Loan

A loan is a financial product that provides you with the money you need to pay for something, like a new car, a home improvement project or paying off credit card debt. There are different types of loans and different terms to consider, and you may need to meet specific income or credit requirements before you’re approved for one.

An Unsecured Loan doesn’t require you to put up any assets as collateral. These kinds of loans include personal installment loans and a personal line of credit, which is similar to a credit card but allows you to use funds on an as-needed basis, with interest charged only when you draw from the account.

Unsecured Loans: What You Need to Know Before Applying

Secured loans, on the other hand, involve putting up assets as collateral that lenders can take if you fail to pay back the loan. For example, mortgages use the borrower’s home as collateral, and car loans use the borrower’s vehicle as security. Because secured loans are considered riskier, they typically have higher interest rates and more strict requirements than unsecured loans.

You can get an unsecured loan through traditional lending institutions like banks and credit unions, or alternative online lenders that offer a range of financing options. When choosing a lender, look for one that has the best loan terms, and doesn’t charge extra fees or penalties. You can also use an unsecured loan for nearly any purpose, though some lenders restrict loan amounts or have special stipulations on how the funds are used.

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