Banks and credit unions offer a range of loan types. There is a kind of loan that is fitting for practically every kind of necessity which clients may have.
Personal loans are some of the more flexible ones. Just as the name implies, they may be used for personal objectives that are distinct and vary from one individual to the other.
So if it is an urgent event you are spending for, a vacation, some medical emergency, or a purchase that cannot wait, you can choose to apply for a personal loan. It can be on a secured or unsecured basis.
Do you know their differences?
Secured Personal Loan vs. Unsecured Personal Loan
On what is the loan to be used?
Because it is generally easier for a debtor to utilize unsecured personal loans, getting approved for one bears more limitations to it in terms of what you are to use it for. These exclusions are the loan use for personal activities that are sanctionable by the laws and even school fees in certain specific cases. Otherwise, you can dispense the money borrowed of your own accord and as you please.
While unsecured personal loans require valid reasons of the debtor for it to be granted, secured personal loans tend to be approved even for purposes of leisure such as buying a vintage vehicle as an addition to a car collection or some out of the country recreational activities.
How much are you borrowing and payment is on what terms?
Just as it is easier to explain your intentions for applying for a secured personal loan, this type of personal loan also offers the advantage of granting higher loan limits relative to the amount usually approved on an unsecured basis. Longer payment terms may also be applied which means lower monthly installments and more leeway for the borrower.
How does the interest rate work?
In the event that you are approved with a secured personal loan, you may expect lower interest rates compared with those of the unsecured type. Although unlike loans in the unsecured category, secured loans, varying from one bank to another lender, may have a variable rate which subjects the interest rates to change after acquiring the loaned money.
Do you need to provide a collateral?
One of the couple of other reasons that creditors approve secured loans relatively faster or are fairly more lenient on loaning on this basis is because it is collateralized. A secured loan may be supported by a land title, a car ownership, or other valuable assets. In some cases, personal savings may be accepted as a collateral.
In the event of failure of the payer to fulfill his credit responsibilities and on the agreed terms, the creditors has the right to claim the collateral items previously presented. It is one risk with secured personal loans. But using your home as collateral does not necessarily mean that you put it in jeopardy. You are to do everything within your financial capacities to repay on time, right? So, you decided based on calculated risk after all.
On the other hand, with borrowing money on an unsecured basis, all you have is your creditworthiness to back you. So, it better be good.
Speaking of creditworthiness, what if yours is a poor one?
Good credit, or the opposite, plays a role too.
Good credit may up your chances of negotiating and actually getting better, meaning, lower interest rates and more breathing space in terms of duration of payment.
If your credit does not exactly qualify as good or if you are in the process of fixing it, but you are really in need to loan, you may opt to try and apply for a secured personal loan. Chances are higher for lenders to approve it despite the unhealthy credit owing to the collateral stipulated. If you get really lucky in this rare instance, your credit may even be disregarded for checking because of the security offered by the collateral.
If your weak credit really gets in the way, you may attempt at applying for a loan with online lenders. There are quite a number of them that are reliable.
Now, which one do you turn to for borrowing cash?
A secured personal loan works for you if you can guarantee yourself that you have the abilities to repay on time. A steady stream of monthly income may be a basis for you to ensure and be at ease that you are capable of prompt payments.
On the other hand, an unsecured loan may be more fitting if you do not have possessions that qualify for a collateral or if you simply do not want to risk any of your assets.
Got good credit and considering applying for a personal loan online? Find out how you can get approved and learn about SoFi personal loans.