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By Israel S — Published January 16, 2018
This type of loan allows you to borrow money for your urgent need. This amount could be to buy an expensive phone, study loans, repay a debt, or for small business. These are a few things to consider regarding these loans and the options available.
Secure Loan or Mortgage loan means this loan is secured with assets or property of the borrower. Thus, incase of default on payment, the attached property is confiscated by the lender. This means that the lender has the right to sell this property to recover the remaining debt owed.
Unsecured loans have no property or security to "protect" this loan. Therefore, there is no guarantee on the money lent. This makes it less risky for the borrower since there is no asset attached in case of defaulting payment. The lenders take the bigger risk to lend the money since they have no security to sell and recover the amount lent. However, they have other options at their disposal, like legal action to garnish your wages or claim part of your wages, hiring a collection agency, or reporting it to the credit bureau. Due to these risks involved the lenders usually charge a higher interest rate.
Approval for the unsecured loan depends mainly on your credit rating. A good credit fetches you lower interest rates and more options to choose like the time period for payback. A bad credit does not give you many options and could even need a co-signatory to get this loan.
Signature Loan or installment loan is the common type of loan which is secured by only your signature, which is your binding promise. These loans are offered by banks or credit unions. The borrowed amount is paid back in fixed monthly installments over a period of time. If you have a good credit rating, these loans are the best option since they offer a low interest rate. These loans can also help build credit with the lender, making future loans less expensive and easier to get due to better rating.
To get a signature loan, you can request your bank for a personal loan.
Credit Card gives the option to borrow. Unlike the signature loan you cannot get a bulk amount, but you can borrow money whenever required. Charging to the card allows you to use quick money until the credit limit is reached. This is the one of the most common methods to borrow money instantly.
Nowadays loan offers are sent via email if you have a good credit. Choose the best one that suits you based on your repayment capability. Remember that the interest rate paid on a credit card is high. The downside is that you end up with monthly bills of hundreds of dollars with added interest.
Student Loan is an unsecured loan for financing student education. These loans offer flexible payback period, interest options, subsidy possibilities favorable to the student. This loan is only available to students. To get a student loan visit your school's Financial Aid office for guidance through the procedure which involves extensive documentation.
Peer to Peer Loan provides the option to borrow from individuals unlike an entity like the bank. Various websites allow you to request a loan online and individuals may or may not help fund this loan. Similar to signature loans, they are fixed loans with competitive interest rates, and can be paid back in installments. Your credit rating could be a decisive factor to get approved. You can check this loan on P2P lending sites like Prosper.com and Lending Club.
Getting a loan could be problematic with a bad credit, though not impossible. The options available would be few and you may even be charged more than a borrower with good credit. It is always better to build up your credit before borrowing again. That could get you loans on attractive terms.
You could reinforce your credit by repaying your older loans within the time period allotted. If your paybacks are punctual it could be positive to rebuild your credit rating. Small loans secured by cash in the bank could help to set an impetus.