A secured
loan requires that you back your loan with something you
own that’s valuable, like your home or your car. If you
fail to pay your loan back, the lender has the right to
take your valuable property, which is known as
collateral in the banking world, and keep it.
The lender
is facing a higher risk when making an unsecured loan.
That increased risk can be reflected in interest rates
that are higher than those for a secured loan.
It’s
important to remember, however, that you do in fact have
something valuable at risk even when your loan is not
backed by collateral. Failure to pay back the full
amount you borrowed on time and consistently can have a
negative impact on your credit rating and increase the
total amount you owe. With bad credit, it will be much
tougher for you to get a loan or credit card in the
future. So, always make your loan payments on time and
in full to protect the good credit you’ve worked to
build. |
