Secured And Unsecured Loans In Detail
Are you finding yourself to be in a tough financial situation at the moment? Do you want to make an urgent purchase and want some disposable money to meet the needs? The first thing that would come to your mind in need of money is to take a personal loan. There are different kinds of loans that you can get from lenders and banks. The loan amount that you get will vary from the lender to lender and it would also be carrying different interest rates and repayment terms for different amounts. The loans that you receive are basically divided into two kinds of personal loans – secured and unsecured. It is very important that you understand the differences between the two so that you get an idea of choosing any one of them depending on your financial need. If you do not know about these two types of loans in detail, you might get yourself into deeper financial debt.
About secured loans
In simple terms, a secured loan is one that needs a collateral security from your side. If you want to make a secured loan claim, then you will have to put something of value in front of the lender. This is what the lender will claim when you make defaults in loan repayment. This will give the lenders the chance to reclaim most of the money that you owe them as they can sell off the property that you mortgage with them. Some of the common collateral items for which a lender will provide you a personal loan are: cars, homes, land, vehicles, jewelry, etc. This kind of a loan is very secure and therefore the lender will be pretty lenient in his or her dealings. They will provide you with a larger principal amount and the interest rates and other charges for getting this loan will be pretty affordable. Also, you will get a longer repayment period when you opt for a secured loan.
A typical example of a secured loan is a property mortgage personal loan. If you are seeking an amount more than $10,000, then you can only do so with some collateral.
If you do not make a repayment or falter to make a series of repayments, then it is vital that you do enter into a conversation with the lender. If you fail to do so, the lender would initiate the process of acquiring your collateral. If this happens, then your credit score would suffer and thereby you will find it very difficult to claim credit in the future.
To know more about secured loans, please visit this link https://en.wikipedia.org/wiki/Secured_loan.
About unsecured loan
An unsecured loan, as the name suggests, will not require any collateral from your side to avail a personal loan. This is a safer option for a borrower as they will not be losing anything that is dearer to them and has value like a car, home, yacht, property, etc. As the lenders do not collect any collateral, lending an unsecured loan amount is always risky. This is why you will be able to borrow only lower amounts through unsecured loans and the lenders will only deal with clients who have a good credit history. The unsecured loan that you get can be used for home repairs, car repairs, children's school fees, holiday, small purchases, etc. You will not get more than $10,000 as an unsecured loan unless you have an excellent credit score and earn a very good income.
How to Be Eligible for an Unsecured Loan
There are certain basic requirements that are needed to qualify for an unsecured loan. You will have to meet the necessary requirements in order to get sanction for an unsecured loan. If you have many credit cards, different loans, have a poor credit score and also have to pay debts for different loans, then the chances of getting an unsecured loan are very dim.
To avail an unsecured loan, you will have to be at least 18 years old. These loans cannot be given to minors. It is important that you earn a monthly income of at last $750 to be considered for an unsecured loan. The monthly salary is what will determine how much of unsecured loan you can avail and it also shows how much you will be able to make as repayment for the loan under normal situations. The credit history is one of the important criteria taken into account when your application for an unsecured loan is taken up by a bank or a lender. If you have poor credit history and other black marks, the chances of getting an unsecured loan are quite bleak. There are a few payday loan lenders who do not check your credit score to disburse the loan.
No matter what kind of loan you get from a bank or lender, it is your duct to repay the loan amount along with its interest and other charges. The repayment has to be done on a regular basis in order to be in the good books of the lenders. Payday loan repayment is a onetime affair and you will have to repay the loan amount along with the additional charges as a lump sum amount and that too before the completion of a month of taking the loan. These loans are tied up to your next payday. The other loans are all long term loans.
Normally, the loans that you repay will be calculated as the principal amount along with the rate of interest. This is called as the Annual Percentage rate (APR) and is calculated annually. So, if you borrow $2000 at an APR of 15%, then you will have to pay $300 as the monthly interest. The lender will try to work out a repayment plan along with you if you do not repay the loan. If this does not work out, then lenders will proceed with legal action. If you have taken the loan against collateral, then they can take it away. If not, you will have to pay off more interest over a considerable period of time.