You need to get a personal loan and the one thing you are confused about is whether to get a secured or unsecured loan. Don’t worry you are not the only one; a lot of people are in the same boat as you are. Just ask your lender, he probably has a ready made introduction course (secured and unsecured 101) for every person applying for a personal loan.
Let’s start with a secured loan. A secured loan is very simply put a loan with some form of collateral for the lender to be assured that the loan will be paid back. This would mean that upon seeking the personal loan you will for example offer your house as a form of collateral and if you cannot pay the loan back the lender can take your home from you. This probably scares you a bit doesn’t it, being homeless isn’t very pleasant.
In addition to that there are benefits believe it or not. The first benefit is that you will have lower monthly payments and it’s stretched over a long period of time this makes it easier for you to pay monthly installments. Also the interest rate charged is considerably lower than that of an unsecured loan. Failure to repay the loan would mean foreclosure or repossession of this asset by the lender, thereby greatly reducing the lender’s risk. Hence, the low interest rates.
Secured loans are also more available to people who might have slipped up once or twice in their credit history. It’s similar to when you fill your car up with petrol and you realize you forgot your wallet at home, you want to leave then to go fetch it but the petrol station manager just met you so how will he know that you will return and pay him what you owe? He wont, therefore you leave something valuable. This makes you more anxious to get home and return a.s.a.p to pay so you feel more at ease.
Furthermore, when taking out a personal loan the lender rarely disputes the reason for your personal loan, hence the term “personal.” This allows you more flexibility in your intentions for the loan and with a secured loan these intentions are very rarely turned down.
There are also benefits to an unsecured loan. An unsecured loan is not secured against any asset and is instead based on trust and contract. This means that if you do fall behind on repayments – although this is not advisable due to the effect it will have on your credit – you will not be risking losing your home or any other asset. Another benefit would be that an unsecured loan will be easy to process because there are no evaluation processes to go through and you only need to confirm that your income is stable and will be enough to cover your payments. However you can only qualify for an unsecured personal loan on condition that you have impeccable credit history.
In conclusion you need to decide what’s better for you and your finances. The two types of loans are there for you to be able to still get what you want and both you and the bank will not feel like you will be losing something. This is of course assuming you will abide to certain requirements and responsibilities.