June 6, 2008, Newsletter Issue #116: About Loans

Tip of the Week

A loan is a form of credit in which you can get money for small or large purchases or other purposes. Some loans are secured, while others are unsecured. A secured loan is one that is backed by the borrower's property. For example, a mortgage loan is backed by the borrower's home. That means that if the borrower fails to pay the mortgage loan according to the agreed upon terms, the lender can seize the home and sell it to recover the money it loaned to the borrower. An unsecured loan is one that is not backed by any property. For example, some banks and credit unions will loan small amounts of money to customers without requiring the customer to pledge any personal property to back the loan. That means that if the customer fails to pay back the loan according to the agreed upon terms, the only recourse the lender has to recover its money is to pursue collection activities against the customer. All reputable lenders require customers to submit to a credit check. Some loans, such as mortgage loans, require borrowers to submit not only to a credit check but to a much higher degree of scrutiny since the amounts loaned are generally so large.

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