Home Loans

Contrary to popular belief, not all credit is equal or runs on the same principles. But the distinction goes beyond good and bad credit. The different types of credit, have different types of regulations, some more risky than others, and not understanding the difference has led many a debtor into over-indebtedness.

Secured Credit
For larger amounts, credit is often secured. This means that the creditor ensures that the money will be paid back to them by putting a lien on assets you own. The assets then function as collateral, which the creditor (as a result of the lien) is entitled to take if you do not live up to the terms of the credit agreement. Car and home loans are usually secured. Often the security (or asset the creditor is entitled to take) is the asset being financed by the credit – the car or home. 

Unsecured Credit
As the name suggests, this type of credit does not require that you guarantee payment by allowing the creditor to put a lien on any asset you own. The creditor of unsecured credit takes your word that you will repay the amount. Being unsecured often means you pay higher interest. Credit cards and utilities bills are unsecured credit.

Installment Credit
Credit can be secured or unsecured and installment credit. This type sees a creditor lend a specified amount of money which is repaid back over a period of time via a series of fixed installments. These are usually for larger sums of money too, such as car and student loans fall under installment credit.

When applying for credit, make sure you know which type you’re applying for. Secured credit is higher risk with harsher consequences for defaults. Unsecured credit is often given at a high interest rate to make up for the risk. With installment credit, make sure you can afford all the installments – often these installments see you pay of the interest first and then larger amounts for the capital later.