At one time or other most people need to borrow money and that’s when you have to decided the kind of loan you need. Personal loans fall into two groups, secured and unsecured.
An unsecured loan is usually a short term loan, such as a payday cash advance. These loans are available to most people, even those who have a bad credit history or are unemployed. As long as you have a regular income (either a salary or SSI benefits) and a bank account you can avail yourself of an unsecured loan without too much trouble. The loan period is a maximum of thirty one days, or longer if you arrange for rollovers. The loan is unsecured and your pay check is your “collateral”. The interest rates on unsecured loans are very high and so are the penalties for non repayment. This type of loan is a good idea for emergencies, but you should carefully work out your budget before applying for one.
A secured loan, on the other hand, is usually a long term loan, such as a mortgage loan over twenty-five years, or a loan to buy a new car with repayments of up to five years. Some people take out a secured, long-term loan to cover several payday loans. The interest on long term loans is lower than short term loans and the repayment amounts are smaller. A secured loan is often offered to clients who have a shaky credit score instead of an unsecured one. You can use your house, your car, or any other commodity of value as collateral; as long as you remember that defaulting will mean losing whatever you have put up to secure the loan. Once your mortgage is paid off you can borrow money against your house; with is often called a second mortgage or a re-mortgage and you can usually borrow up to half the amount of the value of your house for a period of up to fifteen years. If you use your car as collateral your loan amount will be in relation to the age and condition of your car. A lot of lenders dislike taking a car as security because it can be written off in an accident or stolen and they find themselves without any guarantee of repayment.
Whether you decide on a secured or unsecured personal loan, shop around first to find the best offers and don’t forget to read the fine print and remember that a loan has to be repaid.