Category Archives: Debt

Secured and Unsecured Loans, What Are The Differences?

As with any type of financial product, there are pros and cons to taking out any loan, whether that is secured or unsecured. No matter which type of loan you end up getting, a loan is a big commitment that will require monthly payments until the amount is paid in full.

Secured and unsecured loans are very different from one another. Both come with their own sets of rules and advantages. Each also comes with its own disadvantages as well, so it is good to know what you’re getting into before applying for any loan.

Secured Loans

A secured loan requires putting up some kind of asset as collateral. This asset could be a car, furniture, or even a home. For example, mortgages and auto loans are secured loans, so you may already be aware of the disadvantages involved with these.

Secured Loan Disadvantages

In the event that you cannot make your payment, you can expect a repo man to come collect those collateral assets. With a home, this means entering into the foreclosure process. You lose the asset and all of the money you put into the payments, leaving you with nothing to show for it.

Secured Loan Advantages

Even though there’s always a chance you may default on a loan and lose your home or automobile, secured loans have lower interest rates than other loans. This is because there isn’t as much risk to the lender because, if you fail to make payments, they will still get their money back by repossessing the asset.

Secured loans also tend to have longer repayment periods. Even those with poor credit may be able to qualify for a secured loan, although you need to ensure that all past financial problems are taken care of before entering into a new loan agreement.

Unsecured Loans

Unsecured loans do not require collateral. The lender merely relies on your word and contractual agreement as a promise that the loan will be paid back. This creates more risk for the lender, so repayment periods tend to be shorter than with secured loans. One form of unsecured loan is a personal loan taken out from your bank or credit union.

Unsecured Loan Disadvantages

Along with shorter repayment periods, unsecured loans come with higher qualification standards. The better your credit history, the better the loan terms will be. This can mean a high interest rate for someone with less than perfect credit, which means paying back more money over the life of the loan.

Unsecured Loan Advantages

With an unsecured loan, there is no risk that you will lose any kind of asset or property. What’s more, a personal loan is generally cheaper and comes with better interest rates than a credit card or department store card. Some people choose to take out an unsecured loan to fund purchases for which they would otherwise use credit.

No matter which loan type you choose, increase your chances of getting the best rate possible by improving your credit and practicing responsible financial habits.

Different Types of Personal Loans

There are many different types of loans that you can take out personally with very little or no collateral. Depending on your situation and what you plan on using the money for, these different lending options may help you meet your needs.

Personal Loan

A personal loan is a loan that is guaranteed by your personally, similar to a credit card. However, personal loans are usually written and handled by a bank, and the bank looks at your banking history as a client to determine if you are eligible for a loan.

Personal loans typically are available for a larger amount than other types of loans that don’t require much collateral, and they also usually have longer repayment periods, upwards of 5 years in some cases. However, the interest rates on personal loans are similar to that of credit cards, so be careful.

Payday Loan

A payday loan is another type of personal loan that is guaranteed by your paycheck – well, your future paycheck. In order to get a payday loan, you typically have to write the lender a check that covers the full amount of the loan plus all fees associated with it. If, for some reason, when the loan is due and you don’t pay, the payday lender will then cash your check to get reimbursed for the amount.

Where you can run into trouble with these loans is that the interest is very high, and the amount you can borrow is typically very low. If you can’t pay and you check doesn’t go through, the lender will roll you into another loan and another set of fees, which can trap you in a cycle.

Pawn Loan

Finally, the last type of personal loan is a pawn loan. This type of loan is issued in exchange for some type of collateral, like an iPad. You would take your iPad into the pawn shop, and agree on a loan amount, which will typically be about half the value of the item. If, for some reason, you don’t pay, the pawn shop will sell your iPad to cover the cost of the loan.

A Guide to Payday Loans

Small financial emergencies can happen to anyone. Your car breaks down, your computer suddenly crashes, or your roof begins leaking, so you need a small chunk of money quickly but you are smack dab between paydays. Payday loans are a viable financial option for some people. Payday loans are basically small, short-term loans just about anyone can get that allow you to borrow small amounts of money to tide you over until that next paycheck.

Once you are approved for a payday loan, the funds will be deposited into your bank account for you to spend as you need. Payday loan lenders require borrowers to either write a post-dated check or give the lender their bank account information. Then they simply cash the check or withdraw the money from your account when you receive your next paycheck.

When Should You Get a Payday Loan?

1. When you have a bad credit history.

Payday loan lenders don’t run your credit report. Anybody older than the age of 18 who has checking account and a job with a regular paycheck is eligible to receive a payday loan.

Lenders will, however, ask for your social security number and run it through a database to see if you have other outstanding payday loans. Some states limit how many payday loans you can have open at one time.

2. When you need money in a hurry.

Payday loans are processed very fast, so you can have the funds within just a few hours. Most financial institutions take several days just to look at a loan application.

3. When you want to avoid bounced check fees.

A payday loan might be the solution if your checking account is low and you’re in danger of bouncing a check. Keep in mind that a payday loan only benefits you in this situation if the loan fees will cost you less than the bank’s insufficient fund fees.

When Should You NOT Get a Payday Loan?

1. When you want to avoid paying high interest rates.

Payday loans are significantly more expensive than the other type of loans. The APR on these loans runs about 400% but can climb as high as 5,000%. That is why it is so important that you pay off the entire loan by its maturation date.

2. When you can’t pay the loan back quickly.

Depending on your repayment plan, you’ll have to pay back the balance of the loan plus interest in 14 to 30 days. Some states allow extensions on payday loans, but you’ll have to pay a hefty fee for the extension. If you have to roll the loan over a few times, you could easily wind up paying more in fees than you borrowed for the initial loan.

3. When you need a large amount of cash.

Another drawback to payday loans is that you can only borrow smaller amounts. The maximum amount you can borrow varies according to lender and your state of residence, but you can usually borrow no more than $500 to $1,000.

Payday loans might be a viable option for emergency situations, but only if you are absolutely sure that you can pay the loan back on time. If you’re not sure that you’ll be able to pay back the loan in full, try to find an alternative option, such as a credit card with low interest rates.