When you need money that goes beyond your normal income, a personal loan can be a great option.
There are many possible reasons as to why you may need money that exceeds your normal income. Maybe you’re first born is graduating from high school, and you want to make sure they start college off with a nice laptop. Or, maybe the situation is much more dire, like a flooded basement that requires emergency water removal and water damage repair. Whatever the reason though, there’s a strong possibility that you’ll be able to find the money you need with a personal loan. There are essentially two basic kinds of personal loans you could apply for — unsecured and secured — and today, Your Loan Depot will go over the main differences between the two.
What are secured and unsecured loans?
In many cases, when you apply for a loan, it’s for something specific, like a car or a home. But, with a personal loan, you can used the funds for almost anything, which makes them ideal if you’re facing a financial emergency of some sort. Secured loans are loans that are backed by collateral, like a savings account, the title of your car, etc.;whereas, unsecured loans are based on your ability to repay the loan, as well as your credit worthiness.
Now that you know that basics of what secured and unsecured loans are, it’s time to learn about a few of the main areas where they differ.
Lending Criteria
Though the lending criteria will be dependent on the financial institution you choose to go with, there are certain requirements that apply to most lenders. In order to qualify for an unsecured loan, you have to be able to prove that you can afford the payments and that you’re responsible enough to take care of the loan. This is largely based on your credit history, and in many cases, if you have a credit score lower than 680, lenders won’t approve you for an unsecured loan.
Secured loans, on the other hand, are much easier to qualify for. Thanks to the collateral that is put down, lenders are able to offer secured loans to a wider range of people than they would with unsecured loans. This makes it possible for companies to lend to people with no or bad credit.
Costs
The costs of a loan are largely due to the interest rates — though, you should also be aware of any applicable fees — and you should always consider the costs before applying for a personal loan. In terms of cost, secured loans are generally the most affordable options. The collateral you put down helps to shield the lender in case you default on your loan, which means that lenders can afford to lower their interest rates a bit for secure loans. If you’re looking at a short-term secured loan, like a title loan, keep in mind that you’ll probably have a higher than standard interest rate, but because these loans are paid off so quickly, you end up paying less in interest over the course of the loan.
What Happens if You Default?
If you were to default on a secured loan, then your lender has the right to seize your collateral, and they can do so without having to go to court first. However, most lenders will work with you to prevent you from defaulting on your loan. With an unsecured loan, defaulting could still cause you to end up having to give up some of your property, but before that can happen, your lender would be required to sue you and win a court judgement first.
When to Use it
Due to the requirement of a good credit score and solid credit history, unsecured loans are best for people with a strong credit score. Unsecured loans are great options if you’re looking to consolidate other debt, take on a major home improvement project or pay for your child’s tuition. Secured personal loans are best for people who may not have the best credit score or history, but need money in the short-term to cover expenses. Secure loans, like title loans, are ideal when you need quick cash for a financial hardship or emergency.
Find the bad credit loan you need with Your Loan Depot today.
Although unsecured loans are harder to qualify for and cost more than secured loans, they are much more common than secured loans. In fact, most banks don’t even offer secured loans. If you have bad credit — or not credit at all — and you need fast cash, don’t waste your time trying to get an unsecured loan through your bank or credit union. Instead, turn to Your Loan Depot in Mansfield. We offer title loans and payday loans, helping to bridge the gap between paychecks and cover financial emergencies. Stop by one of our many locations in Texas today to apply, or contact us to learn more.
