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When
you take out a secured loan, you have to back your
promise to repay with an item of value, for example your
home or car. If you do not pay your secured loan back on
time and in full, the lender can take possession of the
property you pledged as security. That pledged property
is also known as collateral.
A
personal loan, on the other hand, does not require any
collateral. All the lender has to guarantee your
personal loan is your signature on the loan contract.
This means the lender faces a greater level of risk with
a personal loan. If you do not repay your loan, the
lender has nothing of value to make up for the loss.
Because of that increased risk, the interest rates on
personal loans are often higher than on most secured
loans.
It
might seem that not paying back a personal loan is less
serious than not repaying a secured loan where you could
lose your house or car, but you do have something very
valuable at stake with a personal loan. Failure to repay
your personal loan can do serious damage to your credit
rating.
Bad
credit can affect your ability to borrow money in the
future, to qualify for a credit card, to be considered
for a job and to be able to rent a home or apartment.
You’ve worked hard to build your good credit, so take
these simple steps to protect it:
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