Looking for quick cash online or in store, for emergency expenses? First, learn the different types of loans available to consumers and the basic differences between each. Lending products such as installment loans or any loans in general, usually fall into two broad categories- secured and unsecured.
What is a secured installment loan?
It is a personal loan that is usually backed or protected by collateral. The borrower pledges some sort of assets such as personal property (home), bonds, stocks, vehicle, etc. in order to secure the cash advance. Banks or alternative online lenders will hold the deed until the loan amount is completely paid back along with the interest and other fees applicable.
Secured Loan Features:
Larger amount of money– Traditional lenders find it risky to lend funds to borrowers who lack personal guarantee. However, with these types of collateral loans, you can get easy access to big sum of cash easily.
Secured loan rates– Usually, such online loans are offered with low rates making it affordable to repay. Since you guarantee the loan repayment with your personal valuables, the risk to lenders is considerably lessened and thus you get lower rates.
Repayment terms– It is important to repay your loan with collateral as per the agreed terms and conditions. If you default on the payment, there may be a risk of losing your property or any other security that you have pledged. However, secured loan lenders provide better terms and hence there is no threat to your valuables.
Examples of the best secured loans:
- Auto loans or car title loans
- Mortgage loans
- Recreational vehicle loan
- Home equity line of credit
- Personal bank loans
- Small business loans (Few)
What is an unsecured installment loan?
It is an advance cash loan that is not supported by any kind of security. Many online loan direct lenders offer personal financing purely based on your creditworthiness and your capacity to repay the loan. Thus, borrowers who do not have anything of value that can be served as collateral, consider unsecured loan as a better alternative to secured funding.
Unsecured Loan Features:
Lower borrowing limit- The amount of money accessible through unsecured cash advance is comparatively lower than what you usually can obtain through a secured loan. However, this is the best choice when you are denied for a secured loan from other sources.
Unsecured loan rates- No collateral loans are considerable risky to lenders because there is no essential personal assets to grab hold of, in case of loan default. Hence, the interest rates for unsecured credit are slightly high.
Loan Terms- The repayment terms are fixed and the payments remain constant. Thus, you have a definite amount of time to pay back your unsecured loan in easy and flexible installments.
Fast Funding– There is no documentation or paperwork involved in the lending process. Hence, the approval process is instant and funds are deposited quickly in your authorized account.
Both secured and unsecured loans serve your financial needs. However, before borrowing one, it is advisable that you understand the pros and cons of your loan choice, the lender you are working with, how the product works, the rates and fees involved, terms and conditions, eligibility criteria, etc. Most importantly, regardless of the loan product, ensure that you repay your loan responsibly.