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What is the Difference between Secured and Unsecured loans? |
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A Secured loan is the one which have collateral, attached to them in the form of a lien. A lien is a legal claim on one's property till a debt secured by the property is paid off. In other words, a lien gives the right to claim a person's property if an obligation is not discharged. Good example of a secured loan is a mortgage loan, which is a loan secured by your house that involves a lien. Usually the mortgage company holds the lien on the property as a security for the repayment of the debt. Other type of secured loan includes car loans home equity loan and home equity line of credit. These Secured loans are non negotiable in any form.
While, unsecured loans allow you to obtain services or goods on credit in exchange for your verbal or written commitment to pay the creditor’s back. These type of loans are not secured by collateral. Examples of unsecured loans involve medical bills, credit cards, commercial loans, consumer debt and personal loans. In case one fail’s to pay off these debts, the only way left out for a lender is to take legal action. Debt Settlement and consolidation are applicable only with unsecured loans.
For example, if some one owes a creditor a $1000 and is unable to pay back, it is advisable that one chooses a debt settlement or a consolidation program. The debt consultant can negotiate with the creditor to settle the debt to 30 or 40% of the original balance in the case of a settlement or help to eliminate the late fees and taxes, which have been added to $1000 because one could not satisfy the repayment obligations. In most of the cases, the creditor agrees since they do not have many options left. A creditor can also approach the court and sue the debtor to collect the money. But this increases tension due to additional money with lot of hazels. Therefore, it is advisable to seek the help of a professional company such as debtfreeafterall.com to negotiate with your creditors.
Article Written by Naz
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