What Is a Life Underwriter Training Council Fellow (LUTCF)?

Underwriters' meetingNew insurance agents can get a grounding in the basic skills, such as underwriting, needed to succeed in the field by becoming a Life Underwriter Training Council Fellow (LUTCF). After completing the required training, agents will have greater expertise in prospecting, selling, practice management as well as insight into practice specialties including life and health insurance, employee benefits and annuities. Having a LUTCF also can aid new agents in acquiring a job with an agency and in marketing themselves to prospective clients.

The LUTCF is overseen by the National Association of Insurance and Financial Advisors (NAIFA). The training and testing are provided by education company Kaplan through its College for Financial Planning division.

LUTCF Certification Requirements

The core of the certification requirements for the LUTCF is a set of three courses. Each course consists of eight weeks of instruction followed by a week for review and testing.

The first course is an introduction to life insurance and managing a life insurance practice. It covers business planning, ethics, life insurance product basics, risk management, prospecting, selling skills and financial planning.

The second course goes deeper into life insurance as well as annuities, mutual funds and insurance for health, disability, long-term care, group coverage and property and casualty. Risk management, retirement and estate planning are among the subjects covered in the third course.

The third course deals with risk management applications. It covers retirement and estate planning as well as special situations.

The courses are available as self-paced prerecorded lectures. They are also taught live and via interactive online classes. After completing each of the three courses, students must pass a two-hour test. To pass, they must correctly answer 70% of the 50 questions on each test.

The training costs $950 per course for a total of $2,850. The only prerequisite for the LUTCF is to belong to NAIFA, which has a sliding membership fee scale. People in their first year in financial services pay $10 to belong to NAIFA. The fee increases annually until it reaches $56 a year after a member has five years of experience in the field.

After receiving the designation, LUTCF designees can renew it by paying a $50 renewal fee every two years. As part of the renewal process, they also have to demonstrate that they have completed three hours of ethics continuing education every two years. In addition, LUTCF holders must agree to follow standards of professional conduct and be subject to a disciplinary process.

LUTCF Holder Jobs

Insurance worksheetsLUTCF seekers are usually insurance agents at the start of their careers. They may be interested in obtaining the designation as a way to convince potential employers of their commitment and knowledge about the life insurance industry. Having the LUTCF initials on a business card is also seen as an aid in marketing to prospects. The LUTCF is an optional certification and does not confer any specific powers or privileges on holders.

The designation has been around since 1984 and approximately 70,000 people have earned an LUTCF during that time.

Comparable Certifications

There are only a few entry-level certificates available to life insurance agents. In addition to the LUTCF, new agents can choose from:

Financial Services Certified Professional (FSCP) is offered by the American College of Financial Services, which originally co-sponsored the LUTCF with NAIFA. In 2013 the organizations ended their association and the American College of Financial Service began offering the FSCP. It requires passing seven courses on financial services and ethics topics at a combined cost of $3,230.

Registered Financial Associate (RFA) is a designation from the International Association of Registered Financial Consultants. It is offered to agents and other financial professionals who have already received a life insurance license, Series 65 securities license, bachelor degree in a related field or any of a number of professional designations, including a LUTCF. RFAs also have to pay a $250 fee. The only requirement other than that is to pass an examination on the organization’s code of ethics for financial professionals.

Bottom Line

Business meeting

The Life Underwriter Training Council Fellow (LUTCF) certification is one of the first designations sought by beginning life insurance agents. To get one, students have to learn about life and other forms of insurance, mutual funds, annuities, employee benefits and financial advising, in addition to managing a life insurance business, prospecting and selling.

Tips on Insurance

  • A consumer considering purchasing life insurance can increase the chances of making a good decision by having a relationship with a trusted and experienced financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • Entry-level designations for financial services professionals like the LUTCF indicate that an advisor is interested in learning about the field and following best practices. More advanced certifications such as Chartered Life Underwriter and Certified Financial Planner are likely to indicate that a professional is a more experienced and well-informed source for financial advice.

Photo credit: ©iStock.com/FangXiaNuo, ©iStock.com/hfng, ©iStock.com/jhorrocks

 

The post What Is a Life Underwriter Training Council Fellow (LUTCF)? appeared first on SmartAsset Blog.

Source: smartasset.com

Dave Ramsey’s Baby Steps Explained

Whereas Dave Ramsey’s Baby Steps have often been dissected one at a time, my goal in this post is to give an overview of the steps as a unit and explain why the order is essential.

dave ramsey baby steps explained

Hopefully, these steps can help you create a focused life plan for your finances, regardless of your age or financial well being.

First, the Baby Steps:

  • Step 1: $1,000 in an emergency fund.
  • Step 2: Pay off all debt except the house utilizing the debt snowball.
  • Step 3: Three to six months of savings in a fully funded emergency fund.
  • Step 4: Invest 15% of your household income into Roth IRAs and pre-tax retirement plans.
  • Step 5: College Funding
  • Step 6: Pay off your home early.
  • Step 7: Build wealth and give.

The Power of Focus

Dave’s premise with the Baby Steps is that people can accomplish great things IF they can just be focused. When you read over these seven steps, you think, “Yes. I need to be saving. But I also need to be investing for retirement. I should get my house paid off early. But I also need to be getting out of debt and saving for my kid’s college.”

You would readily agree that all of these goals are important for successful financial planning. The problem is that your stress level kicks into overdrive with the prospect of doing them all. You clench your jaw and do what you are capable of doing while feeling anxious about the goals you place on the back burner.

The Baby Steps plan works because when you stay focused on one step at a time, you can knowingly put some important goals on hold without the nagging feeling that you are leaving something undone.

You can also check out my YouTube video where I break down each of Dave’s Baby Steps here:

Why?

Because accomplishing each step puts you in a great position to accomplish the next one.

You begin to feel an empowerment and a sense of control as you get one step behind you and start the next one. You are making progress instead of treading water.

Why Are the Baby Steps in the Order They Are In?

Dave Ramsey's Baby Steps

Steps 1 and 2: $1,000 Emergency Fund and Debt Snowball

Notice that Steps 3 through 7 are all about using your money to do something positive for you and your family. Of course this money comes from your income, but the problem with most of America is that we are using our income on debt payments.

Because we are paying others instead of ourselves, we need to get rid of our debt (Step 2) in order to free up our income for Steps 3-7.

Ask yourself,

“What if I could use all the money I am currently paying to creditors to start “paying myself”?

For many people this is $1,000 to $3,000 a month.

Baby Step 2 debt snowball is designed to do just that. Step 1 is necessary before Step 2 because you don’t want to start paying off debt without having a small cushion to absorb the little unplanned expenses that will occur during Step 2.

Step 3: 3 to 6 months of Savings

After completing the first two steps, you are out of debt (except for your house) and now have that cash flow you dreamed about: all of the money you used to pay others is at your disposal. The temptation is to start investing for retirement or saving for your kid’s college or pay off your house early.

NOT SO FAST! You will get to those, but doing so prematurely is way too risky.

Stop, take a deep breath and use that cash flow to build up your emergency fund so you will indeed be ready for emergencies. This fund needs to be liquid (in a top savings account or money market account).

If you skipped the step and started any of the ensuing steps, how would you handle emergencies? Pull money from your retirement account? Rob the kid’s college savings? Borrow money against your house? All bad ideas.

Step 3 is therefore always ahead of the following steps

Steps 4, 5, and 6: Saving for Retirement, College Funding, Pay Off Home

dave ramsey baby steps

You may be asking,

“Why is retirement ahead of college funding? Wouldn’t a good parent put his children ahead of himself?”

Good question. But what if you end up without sufficient retirement income because you made college funding a higher priority? Who will you be depending on in your later years? Your kids!

The thing about retirement planning is that you only get one shot at it. The years go by and you will someday be retirement age. You don’t have a choice. On the other hand, college funding is full of choices: kids can get scholarship, they can work, they can attend community colleges, they can find work/co-op programs, etc, etc.

Step 4 is therefore ahead of step 5. But notice that Step 4 is 15% of your income. If you have cash flow greater than 15% you can apply that to college funding immediately, and if you have more than enough cash flow to accomplish both steps 4 and 5, you can use all of the extra to pay off your house early (step 6).

Note that Step 6 comes behind retirement and college funding because reversing the order could possibly give you a paid for house at the expense of a dignified retirement or helping your kids through college. Most of us wouldn’t want that.

Not sure where to start investing for retirement? Here are some tips:

  • Best Places to Open a Roth IRA – Figuring out where to start investing your 15% of income can be confusing. A great place to start is a Roth IRA, but deciding a broker is confusing. This list will help you pick the best broker for your Roth IRA.
  • Best Online Stock Broker Sign Up Bonuses – You can get hundreds of dollars or thousands of airline miles just for opening up a brokerage account.
  • Beginner Investing Strategies – If you’ve never invested before it can be overwhelming. This list breaks down getting started into manageable pieces.

Step 7: Build wealth and give.

Life is now very good! You have no debt, a great emergency fund, and a paid for house. All of the cash flow that used to go toward debt reduction and house payments is now at your disposal.

This, by the way, is the step Mandy and I are on. Being semi-retired, we don’t have a huge income, but it is very sufficient because we also don’t have any debt. We continue to invest every month and we are able to give more than we have ever given before.

Once we got our house paid off, we started to budget “bless” money, which we put into an envelope every month just to have available so we can bless others as we see the needs. We are also able to help our grown daughter and daughter-in-law cash flow their college.

As I said, life is good. Mandy and I are experiencing great financial peace and we are very grateful for Dave Ramsey’s Baby Steps.

I wish the same for you.

This article is a general overview of what Dave Ramsey has to offer and is not intended to replace his course, nor is this sponsored or endorsed by Dave Ramsey or the Lampo Group.

The post Dave Ramsey’s Baby Steps Explained appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

How To Save Money On Textbooks + Campus Book Rentals Review

How To Save Money On Textbooks + Campus Book Rentals ReviewIf you are looking for tips on how to save money as a college student, then one of the top things you need to learn is how to save money on textbooks such as through cheap textbook rentals. In this post, I will be including a Campus Book Rentals review because I used this textbook rental company throughout college and was able to save a great amount of money with cheap textbook rentals.

P.S. I also have a Campus Book Rentals coupon code at the end of the post, so do not miss out on this valuable Campus Book Rentals coupon for the best textbook rental company out there!

When I was in college, I always made sure to save as much money as I could. College is expensive, and everyone knows that. The costs can quickly add up. Between the tuition, lab fees, parking fees, textbook costs, and more, college costs can quickly get out of hand.

I know and understand this. I graduated with around $38,000 worth of student loan debt, and that was even with me carefully managing my costs. Thankfully I paid off my student loans (read about how I paid off my student loans within 7 months), but I do like to help others in as many ways as I can.

According to the National Association of College Stores, the average college student spends around $700 per year on the cost of textbooks.

That could be a total of a little less than $3,000 for a 4 year degree just for the cost of textbooks, and as everyone knows, the cost can actually be much higher than that.

I actually think this number that is estimated is wrong, because I don’t really know anyone who bought their college textbooks and only spent $350 or less from their college bookstore on the cost of textbooks. That wouldn’t have even covered two college textbooks for me from my college bookstore.

When I was in college, many of my college textbooks were around the $200 price for just one textbook, and I often took 7 or 8 classes a semester. This means if I paid full price for each book (whether I bought them online or from my college book store), I would have sometimes paid around $1,600 each SEMESTER!

Or $3,200 a YEAR!

That is just insane.

Below are my tips on the best ways to save money on college textbooks:

 

Rent your college textbooks through cheap textbook rental websites such as Campus Book Rentals.

When I was in college, I saved a great deal of money by renting my college textbooks. As I said above, college textbooks for me were expensive if I were to not shop around and just stick with the expensive books at the college bookstore. Who wants to waste a ton of money on the cost of textbooks by buying them at full price?

NOT ME! You can save a lot of money on the cost of textbooks by renting them instead.

I often rented my college textbooks that were $200 at my college bookstore for less than $50 for the semester. There are definitely some cheap textbook rentals out there!

I often found cheap textbook rentals for $25 as well That is a STEAL! I always used coupon codes as well, as they can be found everywhere. Lucky you, if you keep reading I have a CampusBook Rentals coupon code as well! 🙂

It was easy to rent textbooks online. Here is the step by step process of renting textbooks online and my Campus Book Rentals review:

  • I just had to find my college textbooks online such as on CampusBookRentals. Campus Book Rentals is the best textbook rental I used when I was in college. They made it easy and have a large college textbook selection for students to choose from so that you find the exact textbook you need.
  • I would then order the textbook for whatever time frame I needed. You can usually rent them for 45 days, two months, a full semester, or even longer. The longer the time frame, the more expensive they are, of course.
  • I would use the textbook for a class. Of course, this is not a surprise!
  • Once you are done with the textbook, all you have to do is return it. You will be provided a return label, so the return shipping is absolutely free. You don’t have to worry about the textbook being outdated, a new edition being published, losing money, etc.

I also have a Campus Book Rentals coupon code for 5% off your total purchase plus FREE SHIPPING if you need one as well. I genuinely believe they are the best textbook rental company out there right now, or else I wouldn’t be writing this whale of a Campus Book Rentals review post. The Campus Book Rentals coupon code is snowfall5. All you have to do is click on my affiliate link (the Campus Book Rentals coupon code only works with the affiliate link) and once you are ready to check out, enter snowfall5 as the Campus Book Rentals promotional code.

 

Skip the college bookstore for cheap textbook rentals or buy textbooks used.

The college bookstore can be a big rip off. Sorry to everyone who has ever worked at one.

I have three college degrees, and have visited the college bookstore many times to compare prices, and I do not think there was a single occurrence where the price at the college bookstore was cheaper than the price I found somewhere else, such as through CampusBookRentals.

 

Sell your college textbooks.

Some of you might be saying, well why didn’t you just buy your textbooks used and then sell them back, instead of renting college textbooks? Well, this is because it often turned out that whenever I bought a textbook, the very next semester they would be considered “old” because a new edition would be published. No one really buys old editions of finance books as they are considered “outdated” by many professors.

However, there are many instances where selling your college textbooks can be a great idea, and you can make some money as well.  If you are looking to save money in college, then you should learn how to sell your college textbooks back so that they aren’t just hanging out in your house collecting dust.

Thank you for reading, I hope you enjoyed this Campus Book Rentals review and that you learned how to save money on textbooks and a new way on how to save money as a college student.

How do you save money on your college textbooks?

 

Campus Book Rentals coupon code for the best textbook rental company!

P.S. Here is the Campus Book Rentals coupon again as well since you took your time to read my Campus Book Rentals review. I have a Campus Book Rentals coupon code if you need one for even cheaper cheap textbook rentals. The discount will give you 5% off your total textbook purchase rental plus FREE SHIPPING. The Campus Book Rentals coupon code is snowfall5. All you have to do is click on my affiliate link (the Campus Book Rentals coupon code only works with the affiliate link) and once you are ready to check out, enter snowfall5 as the Campus Book Rentals promotional code. This coupon code is good until April 30, 2015, so you have plenty of time to use it for this semester’s classes.

 

The post How To Save Money On Textbooks + Campus Book Rentals Review appeared first on Making Sense Of Cents.

Source: makingsenseofcents.com

Tim Tebow Sells One of His Homes in Jacksonville, FL, for $1.4M

Tim Tebow Sells Jacksonville HouseJohn Lamparski/Getty Images

The former NFL quarterback Tim Tebow has successfully sold one of his Jacksonville, FL, homes for $1.4 million.

As it happens, the buyer has a tie to the sports world. The new owner, Robin Ann Eletto, is chief people officer at Fanatics, Inc., which sells officially licensed sports merchandise.

After washing out on the gridiron, Tebow switched his career path to baseball. Back in 2014, he bought this home for $1.4 million, while still trying to make a go of it in the NFL. In the end, he came out about even with the sale.

Tebow and his wife, Demi-Leigh Tebow, had listed the property for $1.7 million last June. The couple went on to drop the price to $1.6 million before it sold in December.

Built in 2000, the two-story property in a gated community features a large, 6,600-square-foot interior, with five bedrooms and 4.5 bathrooms. Set on nearly an acre, the gracious estate looks out to 175 feet of water frontage. 

Inside, the layout contains a gourmet kitchen with Sub-Zero fridge, brick cooktop niche, and Thermador double ovens, plus a butler’s pantry. The kitchen opens to a family room, as well as a sunroom with brick flooring and a wet bar.

The layout, which features touches of brick and wood, also has a formal dining room with built-ins and a coffered ceiling.

A remodeled owner’s suite on the first floor features an en suite marble bath and dual vanities.

___

Watch: QB Drew Brees Looks to Unload His Amazing Kauai Condo

___

Upstairs offers three bedroom suites, a study, game room with deck, a media room, and an office that could be used as another bedroom.

Outside is a screened lanai with a summer kitchen, which leads to a pergola, fire pit, and a colorful azalea garden overlooking the lake and golf course.

Tebow owns another home in the city’s Glen Kernan Golf & Country Club, which he bought in 2019.

Now 33, Tebow was a superstar in college, at the University of Florida, where he won the Heisman Trophy in 2007. In 2010, he was drafted by the Denver Broncos, but wasn’t able to replicate his collegiate success.

He then switched sports to baseball, joining the New York Mets organization and playing for their minor league affiliates. He also appears on ESPN and the SEC Network as a football analyst.

Jacksonville agent Debbie Tufts of Engel & Völkers represented the buyer in the sale. Julie Little Brewer with Re/Max Specialists repped the seller.

The post Tim Tebow Sells One of His Homes in Jacksonville, FL, for $1.4M appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Accredited Asset Management Specialist (AAMS)

What is the AAMS certification?New financial advisors need something to help them stand out. Consequently, the AAMS does just that. Designed for newcomers to the financial advice business, the AAMS trains advisors to identify investment opportunities as well as help clients with other financial goals. It also gives more experienced advisors a fast and simple way to learn more about asset management and improve their credentials. Here’s how it works.

AAMS Defined

An Accredited Asset Management Specialist (AAMS) can advise clients on college savings, taxes, and retirement savings. The course and tests for this certification are designed to ensure advisors can assist clients with their complete financial needs. It emphasizes evaluating the client’s assets and making appropriate recommendations.

The AAMS certification is granted by the College for Financial Planning, a unit of the Kaplan Company. The college oversees a large number of financial certification programs, including the Certified Financial Planner designation, one of the most valued certifications in the field.

AAMS Certification Requirements

What is the AAMS certification?

To receive an AAMS, students first have to complete a 10-module education program provided by the College for Financial Planning. Then they have to pass an examination. Finally, they must agree to abide by a code of ethics and promise to continue their education.

The courses are online and can be delivered in self-study or instructor-led formats. Courses are open-enrollment, therefore students can begin at any time without waiting for the next session.  The 10 modules cover the following material:

1.:The Asset Management Process

2. Risk, Return & Investment Performance

3. Asset Allocation & Selection

4. Investment Strategies

5. Taxation of Investments

6. Investing for Retirement

7. Deferred Compensation and Other Benefit Plans

8. Insurance Products for Investment Clients

9. Estate Planning for Investment Clients

10. Fiduciary, Ethical, and Regulatory Issues for Advisors

The College of Financial Planning provides everything necessary to study for and complete the modules and take the test. Students have access to the study materials and tests through an online portal.

Streaming video lectures, audio files, and interactive quizzes also can be found through the college’s site. Meanwhile, students can access live classes online and contact professors with questions and issues.

The AAMS Test

To get the AAMS certification, students have to pass just one test. However, they have to make their first attempt at the test within six months of enrollment and pass it within a year.

The fee for the first attempt at taking the test is included in the course tuition. There are no prerequisites for signing up to take the AAMS course.

Time and Money Requirement

Tuition for the AAMS courses is $1,300. This includes the fee for the first attempt at passing the certification exam. It also includes all needed course materials. Each additional attempt costs $100.

Students employed with certain financial services firms may be able to get tuition discounts. The college may also provide scholarships.

The College for Financial Planning recommends students plan to spend 80 hours to 100 hours on the course. Since the course is self-study, this amount of time is flexible.

To maintain AAMS certification students have to commit to completing 16 continuing education credits every two years. Also, continuing education has to cover one or more of the topics covered in the AAMS coursework.

AAMS certificate holders also have to agree to follow a professional standard of conduct. As a result, they have to maintain integrity, objectivity, competency, confidentiality and professionalism in providing financial services.

AAMS Certificate Holder Jobs

AAMS certificates are generally earned by entry-level workers in the financial advice business. Consequently, AAMS holders are typically trainees. In some cases, they may provide support services to more experienced and highly credentialed advisors.

The AAMS designation does not confer any special powers or privileges. Instead, it’s an optional credential that students may obtain to advance their careers and enhance their knowledge of financial advice.

Comparable Certifications

What is the AAMS certification?

In addition to the AAMS, the College for Financial Planning offers an Accredited Wealth Manager Advisor (AWMA) certificate. This is a somewhat more advanced designation. As a result, it requires a course equivalent to three graduate level college credits and requires 90 hours to 135 hours to complete.

Chartered Mutual Fund Counselor (CMFC) is sponsored by the Investment Company Institute along with the College of Financial Planning. It is similar to the AAMS certificate except it focuses on mutual fund assets.

Accredited Financial Counselor (AFC) is a general personal finance advice certificate from the Association for Financial Counseling and Planning Education. First, it requires 1,000 hours of financial counseling experience. Secondly, it demands three letters of reference. Finally, applicants must both complete coursework and pass an exam.

Bottom Line

The AAMS designation is usually for newly minted financial advisors, but even experienced pros can use it to bulk up their credentials. The courses and tests associated with the AAMS teach advisors how to evaluate assets and make recommendations.

While this certification doesn’t give an advisor any real powers, it’s a sign that they can identify investment opportunities specific to their clients. Above all else, it can be a great relief to a client who has a child going to college or a retirement house on their wish list. As a result of obtaining an AAMS, and advisor can point them toward the right investments for their goals.

Investing Tips

  • If you’re looking to identify investment opportunities, consider using an AAMS as your advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • An AAMS can help you with college savings, taxes, and retirement savings if you know what your goals are. However, if you are unsure how much you want to invest, what your risk tolerance is, or how inflation and capital gains tax will affect your investment, SmartAsset’s investing guide can help you take the first steps.

Photo credit: ©iStock.com/SARINYAPINNGAM, ©iStock.com/fizkes, ©iStock.com/Suwanmanee99

The post Accredited Asset Management Specialist (AAMS) appeared first on SmartAsset Blog.

Source: smartasset.com

Secured vs. Unsecured Loans: Here’s the Difference

Whether you’re trying to buy a home or looking to get a college degree, you may need to take out a loan to finance your goals. If you’re seeking out your first loan, know that borrowing money is a common practice and you don’t need a degree in economics to understand it! Learning more about loans and the different types can help you make informed decisions and take control of your finances.

Loans take many forms but they all fall within two common categories: secured vs. unsecured loans. Whether you’re approved for either type of loan depends on your creditworthiness. Creditworthiness refers to how responsible you are at repaying debt and if it’s worthwhile or risky to grant you new credit. It’s helpful to be aware of your credit prior to seeking out a loan so you know where you stand.

Now that you’re familiar with the role creditworthiness plays in getting a loan, let’s discuss the differences between secured and unsecured loans, the advantages and disadvantages of each, and which one may be right for you.

What’s the Difference Between Secured vs. Unsecured Loans?

What’s the Difference Between Secured vs. Unsecured Loans?

The main difference between secured and unsecured loans is how they use collateral. Collateral is when something of economic value is used as security for a debt, in the event that the debt is not repaid. Usually collateral comes in the form of material property, such as a car, house, or other real estate. If the debt is not repaid, the collateral is seized and sold to repay all or a portion of the debt.

Key Difference: A secured loan requires collateral, while an unsecured loan doesn’t require collateral.

What Is a Secured Loan?

A secured loan requires collateral as security in case you fail to repay your debt. If secured debt is not repaid, the collateral is taken. In addition to seizing collateral, lenders can start debt collection, file negative credit information on your report, and sue you for outstanding debt. This generally makes secured loans more risky for the borrower.

Conversely, collateral decreases the risk for lenders, especially when loaning money to those with little to no credit history or low creditworthiness. Less risk means that lenders may offer some leeway regarding interest rates and borrowing limits. See the list below to review other typical secured loan characteristics.

Characteristics of a Secured Loan:

For borrowers:

  • Presence of collateral
  • Typically more risky
  • May require a down payment
  • May sell property to repay loan
  • Generally lower interest rates
  • Longer repayment period
  • Higher borrowing limits
  • Easier to obtain for those with poor or little credit history

For lenders:

  • Typically less risky
  • Lender can take your collateral
  • Lender can hold the title to your property until loan is repaid

Secured Loan Examples

The most common uses of a secured loan are to finance large purchases such as a mortgage. Usually, these loans can only be used for a specific, intended purchase like a house, car, or boat. A home equity loan is another example of a secure loan. Some loans like business loans or debt consolidation can be secured or unsecured.

Secured Loan Examples

What Is an Unsecured Loan?

An unsecured loan doesn’t require collateral to secure the amount borrowed. This type of loan is granted based on creditworthiness and income. High creditworthiness makes an unsecured loan more accessible.

The absence of collateral makes this type of loan less risky for borrowers and much riskier for lenders. If unsecured debt is not repaid, the lender cannot seize property automatically. They must engage in debt collection, report negative credit information, or sue. As a result of the increased risk, unsecured loans have characteristics that attempt to reduce the risk. These may include higher interest rates or lower borrowing limits, and you can see more in the list below.

Characteristics of an Unsecured Loan:

For borrower:

  • No collateral required
  • Typically less risky
  • Qualify based on credit and income
  • Stricter conditions to qualify
  • Generally higher interest rates
  • Lower borrowing limits

For lender:

  • Typically more risky
  • Lender can’t take property right away if you default

Unsecured Loan Examples

Common unsecured loans include credit cards, personal loans, student loans, and medical debt. Debt consolidation and business loans can also be unsecured. In each of these instances, collateral is not required and you are trusted to repay your unsecured debt.

Unsecured Loan Examples

Advantages and Disadvantages to Consider

When it comes to deciding on the type of loan you need, it’s important to consider the advantages and disadvantages of each.

Secured Loans

Secured loans present advantages for repayment, interest, and borrowing amount, but have disadvantages regarding a borrower’s risk and limitations of use.

Advantages

  1. Bigger borrowing limits
  2. Less risk for lenders usually means lower interest rates for borrowers
  3. Longer repayment period
  4. Available tax deductions for interest paid on certain loans (e.g., a mortgage)

Disadvantages

  1. Risky for borrower (potential for loss of collateral like home, car, stocks, or bonds)
  2. Specifically for intended purpose (e.g., a home, but home equity loans are an exception)

Unsecured Loans

Unsecured loans can be advantageous for borrowers regarding risk and time, but they pose a disadvantage when it comes to interest rates and stricter qualifications.

Advantages

  1. Less risky for borrower
  2. Useful loan if you don’t own property to use as collateral
  3. Quicker application process than for a secured loan (e.g., a credit card)

Disadvantages

  1. More risky for lenders usually means higher interest rates for borrowers
  2. Hard to qualify for if you have low creditworthiness or inconsistent income (can qualify with a cosigner)

Take a look at the chart below to compare the key advantages and disadvantages between secured and unsecured loans.

Secured Loans

Unsecured Loans

Advantages

• Lower interest rates
• Higher borrowing limits
• Easier to qualify
• No risk of losing collateral
• Less risky for borrower

Disadvantages

• Risk losing collateral
• More risky for borrower
• Higher interest rates
• Lower borrowing limits
• Harder to qualify

Which Loan Type Is Best for You?

After considering the advantages and disadvantages of both loan types, it’s helpful to know which one is the best for certain circumstances. Here are some common contexts in which one may be better than the other.

  • A secured loan may be best if you’re trying to make a large property purchase or don’t have the best credit. The piece of property that you are purchasing can be used as collateral if you don’t already own other property. Additionally, this loan is more accessible for you if you have low creditworthiness and may be more advantageous with lower interest rates.
  • An unsecured loan may be best if you have high creditworthiness and a steady income. High creditworthiness helps you meet strict qualification criteria and can also help you obtain better interest rates (given that this type is characterized by higher interest).

Overall, secured and unsecured loans are each useful in different situations. Remember that the key difference is that unsecured loans don’t need collateral, while secured loans do. Secured loans are less risky for the lender and may allow for some advantageous repayment conditions. On the other hand, unsecured loans are risky for the lender, and they often come with stricter conditions that try to lessen that risk.

It is important to make smart financial decisions such as repaying debt on time and maintaining a good credit history. High creditworthiness is the key to getting the best conditions on any loan. No matter your circumstances, identifying which loan type is best for you depends on your specific credit and goals. Visit our loan center for help in deciding which loan is right for you.

Sources: Consumer Financial Protection Bureau

 

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