Part 2 of Our Mini-Series on Secured and Unsecured Loans

As promised, to our readers in Ohio (and elsewhere) we are working through the Christmas Season and posting the continuation of our mini-series on secured and unsecured loans.

The advantages to mortgages is that interest on the first mortgage on your house is virtually always tax deductible, and the interest on the home equity loan or home equity line of credit is usually tax deductible up to the first $100,000 of the loan amount (you should always check with your tax adviser to find out if you qualify for a deduction). Because the first mortgage lender is taking less of a risk than the second mortgage (home equity) lender, the interest rate on a first mortgage is likely to be lower than that of a second mortgage taken out at the same time. When you look in the financial papers of your newspaper, you will see that current interest rate quotes are lower on first mortgages than on second mortgages.

Other secured or collateralized debts include loans you may take out to purchase expensive consumer items such as cars and sometimes even furniture or television/stereo equipment. If these loans are secured, the lender has the right to repossess whatever it is you used the proceeds of the loan to buy. Unless the lender is offering you a special low interest rate as an incentive to purchase the item, this type of loan generally will have a higher interest rate than a first or second mortgages taken out at the same time. Why? One reason is that your collateral in the lead depreciates in value the minute you buy it and take it out of the store or showroom door. For example, the value of a new car can drop by as much as 10% the moment you drive it away.

Until credit protection laws were enacted, starting in the 1970s, lenders could go to extraordinary lengths to get Money back if you defaulted or work late with payments. They could come to your home and repossess virtually everything in it, including your household pets. Even today, you could end up losing something (such as a TV) you have already paid for if you fail and fall behind in payments on another purchase (such as a stereo). This what happened when your loan has a provision called an add-on clause; if you financed two different items from the same lender, you could end up losing both.

This this ends our series (or should I say mini-series) on the difference between secured and unsecured debt. There comes a time when you must realize your true financial position at the current time. There is no way of knowing what the future will hold as far as the economy goes so it is wise to button down the hatches and be careful with your spending. I suppose this goes without saying.

Have a great boxing day!

If you have not read part two of this mini-series, you should read Part 1 of Secured and Unsecured Loans For Ohio.

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A LOAN CALCULATOR; Enter your loan amount, how many years, the interest rate, and payment frequency (14 for biweekly, 30 for monthly, 7 for weekly. Very helpful so you know exactly what the loan will cost you in interest payments and you will know the total COB (cost of borrowing).

Loan Amount:

Interest:

Years:

Days between payments:
30 for a Month, 7 for Week
and 14 for Bi-Weekly. Easy!