Secured Loans

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor’s perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower’s collateral and the borrower.

Secured loans are available to people who have been denied unsecured loans. They are an excellent way to work towards building your credit score. Banks like them because there is less risk involved. The lower interest rates are also an advantage to choosing a secured loan. You should be careful as you choose what you will use as collateral most banks require a home or a car in order to give the loan, although a savings account such as a CD may work, but you will not be able to access that money for the entire duration of the loan.

The interest rate for a secured loan depends upon various factors such as the amount of money you borrow, the length of time and personal details. You can also insure your payments for peace of mind, so you do not have to worry if you lose your job or are unable to work because of accident or sickness.

Unsecured Loans

Unsecured loans do not have asset for collateral. These loans may be more difficult to get and have higher rates of interest. Unsecured loans rely solely on your credit history as well as your income to qualify you for the loan. If you happen to default on an unsecured loan, the lender has to exhaust collection options including debt collectors and lawsuit to recover the loan.

The simplest unsecured loan is a personal loan from a friend or family member, with an I.O.U. as signature of agreement to pay back the loan. This type of unsecured loan should be well considered whether one is the lender or borrower. Large amounts of money that remain unpaid can be very detrimental to relationships with family members or friends. Either the lender or borrower may be dissatisfied with the rate at which the loan is being paid, and there is little recourse but small claims court if the loan remains unpaid or unsatisfied.

An unsecured loan thus means that the lender relies on your promise to pay it back. They are taking a much bigger risk than with a secured loan, so rates of interest for unsecured loans tend to be higher. You normally have set payments over an agreed period and penalties may apply if you want to repay the loan early. Unsecured loans are often more expensive and less flexible than secured loans, but suitable if you want a short-term loan (one to five years)

Unsecured loans are usually more expensive than those where no security is offered. However, they can be very useful in situations where it is inconvenient, too costly or impossible to arrange secured loans, such as:
1. purchases of small value
2. you rent your property
3. the value of the property you own does not exceed the value of your mortgage

Closed Ended Loans

A closed end loan is a legal term applying to loans that cannot be modified by the borrower. Specifically, the borrower cannot change the number or amount of installments, the maturity date and the credit terms. If the borrower does negotiate a modification of the loan, the borrower will be subject to penalties as determined by the lender.

The terms of a closed-end loan ensure you repay the original amount borrowed (principal) and any interest due by the maturity date. The lender divides the total amount to be repaid by the number of payments, and the borrower then makes equal payments during the life of the loan. Closed-end loans are attractive to someone interested in a predictable monthly payment that will not change. They provide peace of mind and help with budgeting because you always know the exact payment amount in advance.

Closed-ended loans hence cannot be borrowed once they have been repaid. As you make payments on closed-ended loans, the balance of the loan goes down. However, you don’t have any available credit you can use on closed-ended loans. Instead, if you need to borrow more money, you’d have to apply for another loan. Common types of closed-ended loans include mortgage loans, auto loans, and student loans.

These are therefore loans that are set from the beginning of the loan. You can make payments into, but cannot take money out. The money is loaned at a set amount, and the consumer agrees to make payments towards the principal and interest. Also known as installment loans, you can make additional principal payments and pay them off early, but once paid you do not have access to the equity in the property that you have purchased. Typically, the early years of the loan is primarily interest and principal is paid towards the end of the loan period.The only way to access equity is to sell the property, or to get a new loan i.e. refinance.

Open Ended Loans

Open ended loans are loans that you can borrow over and over. Credit cards and lines of credit are the most common types of open-ended loans. With both of these loans, you have a credit limit that you can purchase against. Each time you make a purchase, your available credit decreases. As you make payments, your available increases allowing you to use the same credit over and over.

Open end loans are valuable when the full amount of the credit line isn’t needed right away, but may be needed at various times in the future. With an open end loan, you take only the amount you currently need, leaving the rest available for future use. As you make payments to the loan, those amounts become available to you again, and you can borrow against them. You’re not required to take money until you need it.

Open ended loans are desirable to many borrowers due to their differing characteristics from close ended loans. Open ended loans offer a financial flexibility that closed ended loans are not capable of offering to the borrower. Open ended loans allow additional debts to be charged against the home equity that has been used to facilitate the original loan. The ability to continue to borrow against the original equity, allows the borrower the flexibility to obtain additional funding as needed. The creditor will usually increase the principle in proportion to the additional debt that is incurred against the lien.

All that said, these are definitely loans that a debtor can borrow for many occasions through. Charge cards or lines of credits are a number of the well-known examples of borrowed revenue that are open-ended. These two examples offer borrowers credit score limitations. Every time purchases are created; there’ll be considered a lessen inside cards available credit score. Even so, as payments are accomplished, the remaining credit will increase and it’ll make it possible for the card holder to make use of a similar credit score through and around once more.

Conventional Loans

There are three main types of mortgage loans that people tap to finance their homes: loans insured by the Federal Housing Administration, those that are insured by the U.S. Department of Veterans Affairs and conventional loans. The vast majority of mortgage loans are of the conventional type. It’s important, then, for homeowners to know exactly what these loans are.

Conventional loans are those that aren’t insured by a government agency like the Federal Housing Administration (FHA), Rural Housing Service (RHS), or the Veterans Administration (VA). Conventional loans may be conforming, meaning they follow the guidelines set forth by Fannie Mae and Freddie Mac. Non-conforming loans don’t meet Fannie and Freddie qualifications.

By definition, a conventional loan is any mortgage that is not guaranteed or insured by the federal government. A conventional loan is generally referring to a mortgage loan that follows the guidelines of government sponsored enterprises (GSE’s) like Fannie Mae or Freddie Mac. Conventional loans may be either “conforming” and “non-conforming”. Conforming loans follow the terms and conditions set by Fannie Mae and Freddie Mac. Nonconforming loans don’t meet Fannie Mae or Freddie Mac guidelines, but they are also considered conventional. Whether you’re buying a home or want or refinance your mortgage, a Conventional Loan might be right for you. If you’re unsure about your credit rating, or have concerns about a down payment, Conventional Mortgages can give you piece of mind with super low closing costs and flexible payment options.

The rules regarding what a lender can and can’t do in conventional mortgage lending is determined by the loan’s ultimate destination. A lender who wants to sell loans to the secondary market has one set of rules that must be adhered to. If the borrowers require PMI, another set of rules have to be applied. Because a majority of all conventional loans are sold to the secondary market, those guidelines have become the general standard for conventional mortgages.

Payday Loans

A payday loan is a short term loan that someone with valid employment can use to borrow money against a future paycheck of theirs. The terms are varied and usually require a repayment of the amount borrowed plus a fee and any applicable interest. A formal agreement with all the details of the terms is signed in order to show that we offer zero doubt about the terms.

Hence, payday loans are short term loans that are usually due the next time that you get paid. A lender charges a fee, in exchange for loaning you money until your next payday. Most storefront locations require you to provide them with a physical check as security for the payday loan. Online payday loan companies simply take an ACH (Automated Clearing House) authorization to secure the loan, the same process your employer uses to directly deposit your paycheck each month. In addition, online lenders save you the time and hassle of having to drive to a location and then wait in long lines when they are busy.

To qualify for a payday loan, the borrower must present any valid identification with his or her photo, and a proof of income such as previous paychecks or pay stubs. Lenders do not usually conduct full credit checks on those asking for payday loans. This is because credit checks take up much time and many peoples’ reasons for availing of payday loans are usually because of financial crises. Since this poses a risk on the side of the lender, interest rates tend to be significantly higher. Also, more customers are willing to pay high interest rates during emergency cases. In an attempt to ensure on-time payment, the lender may require the borrower to write a personal check in advance before presenting the borrower with his monetary loan. Loans are usually given out in cash.

Title Loans

People have this notion that a title loan is synonymous to a car title loan. The truth is that there are other title loans aside from car title loans. Title loans cover a variety of loans even if they are not called by specific names. Any loan that requires a title falls under the category of title loans or secured loans.

Title loans are much like other loans you may get from a bank, credit card company or individual. The main item of difference is that a title loan specifically states what collateral is used to secure the loan. In most cases, when people refer to a title loan they are talking about a car title being used as the collateral. At Affordable Title Loans in Salt Lake City, Utah, almost any titled property can be used for a loan.

These loans are typically short-term, and tend to carry higher interest rates than other sources of credit. These loans have higher interest rates than other sources of credit because the lender typically does not check credit and that the only consideration for the loan is the value and condition of the vehicle. The high interest exists because the lender perceives greater risk associated with these types of loans, despite the secured nature of the loan. Title loans tend to be taken out by people who are in a financial bind, which raises more questions about the high interest rates.

The benefits of this kind of loans are enormous. For starters, the interest rate charged for title loans is significantly lower than unsecured loans. And, depending on the value of the title’s asset, the interest can drop to incredibly low rates. There are companies for example that by offering stocks as security can get loans at lower interest rates than governments that technically can’t go bankruptcy.

Syndicated Loans

A syndicated loan is a loan offered by a group of lenders (called a syndicate) who work together to provide funds for a single borrower. The borrower could be a corporation, a large project, or a sovereignty (such as a government). The loan may involve fixed amounts, a credit line, or a combination of the two. Interest rates can be fixed for the term of the loan or floating based on a benchmark rate such as the London Interbank Offered Rate (LIBOR).

At the most basic level, arrangers serve the investment-banking role of raising investor funding for an issuer in need of capital. The issuer pays the arranger a fee for this service, and this fee increases with the complexity and risk factors of the loan. As a result, the most profitable loans are those to leveraged borrowers—issuers whose credit ratings are speculative grade and who are paying spreads (premiums or margins above LIBOR in the U.S., Euribor in Europe or another base rate) sufficient to attract the interest of non-bank term loan investors. Though, this threshold moves up and down depending on market conditions.

There are several different ways that a syndicated loan can be structured. One approach is known as the underwritten loan. With this strategy, the arrangers guarantee the total value of the loan, an approach that in effect helps to ensure that the lenders do receive full repayment. Because this approach places more risk on the arrangers, there are often higher administration fees built into the loan structure that help to offset that risk.

Borrowers taking out syndicated loans pay upfront fees and annual charges to the participating banks, with interest accruing (on a quarterly, monthly, or semiannual basis) from the initial draw-down date. “One advantage of syndication loans is that this market allows the borrower to access from a diverse group of financial institutions,” said Tsui. “In general, borrowers can raise funds more cheaply in the syndicated loan market than they can borrowing the same amount of money through a series of bilateral loans. This cost saving increases as the amount required rises.”

Refund Anticipation Loans

A Refund Anticipation Loan (RAL) is a loan made by a lender that is based on and usually repaid by an anticipated federal income tax refund. They are offered starting in January through the end of the tax season in April. Taxpayers are generally charged fees and interest to obtain a RAL. Just like any other loan, the full amount of the RAL must be repaid even if the refund is lower than the amount anticipated because items like unpaid child support or traffic tickets can often be deducted before the refund is sent.

In the United States, taxpayers often apply for a refund anticipation loan through a paid professional tax preparation service, where a fee is typically charged for the preparation of the tax return. In the United States the Internal Revenue Service rules prohibit basing this fee on the amount of the expected refund. An additional fee is usually charged by the service for originating a bank product and establishing a short-term bank account. By law this fee must be the same on both loan and non-loan bank products, and in 2004 the average fee was $32. The bank through which the loan is made charges finance charges.

If you’re short on cash, this type of arrangement could be very helpful. But before you consider it, it’s good to know the potential disadvantages of RALs:
1. High interest: As mentioned, the interest on a refund anticipation loan can be enormous depending on the company you work with. For some, the amount that must be paid back simply doesn’t justify receiving the refund a few weeks early.
2. Upside-down loan: It’s possible that you could secure an RAL that after fees and interest, ends up larger than the amount of your tax refund. If this happens, you will be liable to repay the balance, not to mention you’ll be charged hefty fees and fines if you’re unable to repay the loan on time.