If you’re considering applying for a personal loan, one of the first things you need to take into consideration is whether to apply for a secured or unsecured personal loan. The basic difference between them is that you need collateral to be qualified for a secured personal loan, in the case of an unsecured personal loan the lender doesn’t require collateral.
You can easily apply for a personal loan online and find out if you can qualify for a loan by simply checking and verifying your personal information.
You just need to provide some basic information:
- Age
- Employment Type
- Credit score
- Minimum Net Income (Monthly)
- Work Experience
- Etc.
After applying your basic information you need to wait for a few hours to get the answer.
What Are Secured Personal Loans?
Secured loans require collateral to qualify for funds. For instance, in the case of mortgage and car loans, your car and home are the collateral. When you fail to pay back the loan, the lender can repossess the collateral to compensate for the unpaid funding. Yet, as the lender reduces the risk with a secured loan, it is expected to charge lower interest rates.
Here are a few types of secured loans:
A mortgage is a loan for buying a house and at the same time house is the collateral for borrowing money. If the borrower is not able to pay off the money he can lose the house.
Auto loans are used to buy cars, trucks, motorcycles, and boats. The vehicle you buy is used as collateral. In case of non-payment, the vehicle can be repossessed by the lender.
A secured credit card allows people with limited credit history to recover and rebuild scores. A cash deposit is used as collateral for this option. If money is not repaid, the money is taken from the cash deposit.
What Are Unsecured Personal Loans?
Unsecured personal loans don’t require any kind of collateral to qualify for funds. To get qualified for an unsecured loan you just need a good credit score and your interest rates may be higher. Of course, lenders are facing up more risks providing this loan, because there is no collateral to repossess in case of default.
Before, you will be qualified for an unsecured loan the lender will examine your financial resources. They will check your credit history and scores.
Here are a few types of secured loans
- Credit Cards – there are many varieties of credit cards, but common credit cards have once a monthly payment and if you do not pay the bill in full they charge interest.
- Personal Lines of Credit – Like a credit card, it has a limit on how much you can use. You can use this loan for anything, and you only will be charged interest on the amount you spend.
- Student Loans – they are used to pay for educational expenses.
Although, if you have been rejected a loan or owe another debt, you can still consider 2nd chance payday loans from direct lenders.
Here are lenders that offer personal secure and unsecured loans:
- Banks
- Credit unions
- Online loan companies
Of course, the lenders can vary in their loan requirements and the interest rates they offer.
Interest Rates: Secured vs. Unsecured Personal Loans
Usually, unsecured personal loans charge higher interest rates than secured loans. As unsecured loans are riskier and don’t have collateral, the lender may be concerned you are less likely to pay off the loan properly. A higher risk for the loan means a higher rate for you.
The average APR, or annual percentage rate, for a 24-month personal unsecured loan, is about 9.34%.
A secured loan typically has a lower rate. The possible APR is 6% or lower, depending on the term length, the amount borrowed, and credit history.
How to choose between personal loans?
To figure out which loan type is better for you depends on your needs, credit history, and score. You can shop around and apply for online personal loans to compare the available options and find the one with lower interest rates.
A secured loan generally has lower interest rates and higher borrowing limits, it will be the best option for you if you can make payments on time, and they also are the best option for even people with bad credit history.
An unsecured loan is the best option if you are afraid to place your properties as collateral. Although interest rates are higher in this case they can be affordable if you have a good credit history.
Both secured and unsecured personal loans have distinctive pros and cons. If you need it, and you are still not sure whether to apply for a secured or unsecured personal loan, you might talk to multiple lenders, compare available options, their interest rates, and risks, and find out whether you will be qualified.
Shop around, organize and arrange your expenses taking into consideration your income to ensure that you might get the best loan for your financial needs.
