Secured and Unsecured Loans

When looking for funding the first and most basic thing you'll need to understand is the options for secured and unsecured loans. Until you make this decision all others are irrelevant. It will have an effect on your interest rate, your repayment length, and what will happen if you fail to make payments.

Secured Loans

In this case you'll need to have some kind of collateral for the loan. This is most commonly real estate, but could also be a vehicle, jewelry, or other valuable collectible. Typically banks will only accept a second mortgage. When your collateral is a home or vehicle you can go on using your property as normal, but sign a note saying that if you fail to make payments the lender can repossess your property and sell it to make up the money you owe them. When you use jewelry or collectibles as collateral the lender will hold the item until the loan is repaid in full.

Because the lender will receive their money one way or another they are taking less of a risk lending you money. This allows the lender to offer you much more flexible terms. Your interest rates will be lower, your credit history is less of an issue, and if you need to extend the length of repayment on the loan lenders are more willing to work with you on this.

Unsecured Loans

Unsecured loans have no form of collateral or security for the lender. Applicants are chosen primarily based on their credit history and overall financial situation. If you do not make payments the lender's only form of recourse is to report the lack of payment to the credit bureaus and to try and sue to get their money back. Due to the lack of collateral for the lender and the increased risk for them you will have a much higher interest rate on unsecured loans, and the lower your credit score, the higher the interest rate will be.

If you are confident you'll be able to make payments, and have some form of collateral to offer, secured loans will save you a great deal of money and offer you more loan options. Secured and unsecured loans are very different, but in both cases it is good to be clear on what is expected of you and read the terms carefully.