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Loans are important to the way that people live. They are used to give us the money we need in order to get a car, a home, or any other essential or non-essential thing that we need. What many people do not realize is that there are dozens of different ways to get a loan and these fall under two categories; secured and unsecured.

Unsecured Loans

These type of loans are considered to be monetary loans because they do not need any type of collateral. Many businesses will do these type of loans though they are not always easy to obtain. However, they are quite popular among people.

  • Credit card debt
  • Bank overdrafts
  • Line of credits
  • Personal loans
  • Corporate bonds

These are the most popular types of unsecured loans that you can use though the interest rates can be extremely high. They are not always regulated by the law.

Secured Loans

When a loan is secured it means the person who has borrowed the money is promising a type of collateral in order to obtain the money they need. This collateral could be a car, a piece of property, or something else of high value. One of the most common type of secured loan is the mortgage loan – which is used to obtain money for a home.

With this type of loan the money they receive will go immediately to pay for the home and the lender – which is usually the bank – will be given the lien to the house until they have been paid back. This motivates the borrower to pay it back or risk losing their home to the bank – who will sell it off to someone else.

Another common secured loan is one that is taken in order for someone to purchase a car. This is done in the same manner as the mortgage loan – except that it does not take as long for someone to pay it back.

One type of secured loan that is only legal in certain states is the payday loan. This is a short term loan that comes due at the person’s next paycheck. It is used by people who need to pay bills that are overdue or that emergencies that have come up. Many people use this because it is quick and does not require a credit check. The collateral used is the person’s paycheck – which will be cashed if the person does not pay back the money.

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