Types of Personal Loans
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Loading ...There are 3 types of personal loans available on the market; secured loan, unsecured loan and line of credit. There are several factors that you should take into consideration when applying for a personal loan.
- The amount of money you need
- The interest offer by a lender or bank
- The amount of time you have to repay the loan
- Your possessions that can be used as collateral against the loan
- The advantages and disadvantages of each loan type
Secured Loan
A secured loan is given regardless of your credit history because of the collateral you offer in return to guarantee the loan. Most homeowners usually qualify for a secure loan, but other valuables can be used as collateral such as a car, land or buildings. The lender is less adverse to lending you the money knowing that he can take possession of the collateral you have offered in order to guarantee the loan if you default on the loan. Of course loosing your home or car is a serious disadvantage, but only if you are 100% confident with your ability to repaying the loan then this should not pose a threat. The advantages of a secure loan are better interest rates, lower monthly payments and a longer repayment period thanks to the collateral.
Unsecured loan
An unsecures loan does not require you to put your home or car on the line. It is often used by people who rent and do not own a home or have any significant collateral. Unsecured loans generally do require good credit history. An advantage is that it is processed more rapidly than a secured loan since all that is need is your credit report and your lender’s application. But the disadvantages are higher interest rates and monthly payments as well as shorter payment terms. Plus, the loan amounts of an unsecured loan are usually smaller than those for a secured loan.
Line of Credit
A line of credit is a lot like a credit card; you have a limit that you can borrow up to at any given time as long as it is within that limit. The limit is determined by how much collateral you are willing to put up and how much you are asking for. You also have a monthly payment and a deadline for repaying, but as you pay down the loan you then automatically qualify to reuse it again up to the predetermined limit. An advantage is that you can request a higher credit limit if you make regular payments and follow the agreed upon terms. But as with credit cards you can easily fall into very bad spending habits. Be careful if you have a tendency to overspend, this may not be the loan for you.
If you have collateral you obviously have more choices. But whether you do or not, the same rules apply; shop around online for the lowest rates and payments. Know and respect the terms and conditions of your loan and always make your payments on time. Good luck!
