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What is a secured loan?

A secured loan is a loan in which the borrower pledges an asset (e.g. a car or property) as collateral for the loan. Due to the fact that you are borrowing money against an asset you own, the interest rates tend to be a lot lower than with unsecured loans. That said, the risks can be higher due to the fact that your asset can be repossessed if you do not keep up the repayments. Secured loans are normally used to borrow large sums of money. Some examples include home equity, mortgages and auto loans.

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What is an unsecured loan?

An unsecured loan is a monetary loan that is not secured against the borrower's assets. Unsecured loans often take the form of credit card debt, personal loans, bank overdrafts, credit facilities or corporate bonds. You can learn more about unsecured loans in this article from Investopedia.

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What is a balloon payment?

A balloon payment is a large, lump-sum payment made at the end of a long-term loan. It is commonly used in car finance loans as a way of reducing monthly repayment figures. Be aware that once you reach the end of your loan period, that balloon amount becomes payable. More information about balloon payments is available in our article

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What is effective annual rate?

The effective annual rate is the actual interest rate that you pay on a loan if the loan is affected by compounding.

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What is APR?

APR stands for Annual Percentage Rate and is an important factor in determining the overall cost of a loan. You can use APR to compare different personal loan offers. When you arrange a loan with a finance company, their offer can include extra fees associated with the loan. The APR figure takes that information into account, giving you a simple percentage interest rate to allow you to compare and shop around.

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