subject: Secured And Unsecured Personal Loan [print this page] There are various reasons why a lot of people seek personal loans. It could be to get enough funds to start a small business or when you are in need for immediate cash. However, you might want to be careful if you are in the habit of applying for personal loans to pay for a luxurious lifestyle that you cant actually afford without the loan. It is probably wise if you would refrain from taking a personal loan unless you necessarily have to.
You may want to familiarize yourself with the different types of personal loans available. They are as follows:
i) Secured Personal Loan
A secured personal loan is obtained by putting up an asset as collateral. Assets such as property or car may be used as a security for the lender to repossess should you default on the payments of the loan. If you put your home as collateral, the loan you are getting may also be known as a home equity loan.
There are advantages and disadvantages to obtaining a secured personal loan. One of the advantages of a secured personal loan can be the lower interest rate. Since you will be putting up one of your assets as collateral, your creditor will use the collateral as security and they will exercise their rights over your property or car or whatever asset you put as collateral if you continuously fail to make the monthly payments of your loan.
Another advantage is that it is usually easily obtainable even if you have poor credit history. This is also due to the fact that your creditor has a hold on the asset that you already put up as collateral. So the fact that you have low credit scores probably would not matter much to your creditors.
One of the disadvantages is if you put your home up as collateral, you run the risk of foreclosure if you fail to make due payments continuously. So it is advisable that you go through all your options and be sure that you will be able to meet all due payments if you do not want to lose your home because you are unable to pay off your personal loan.
ii) Unsecured Personal Loan
An unsecured personal loan is a loan without collateral. Unlike a secured personal loan, no form of security or collateral is required in order for the loan to be approved. An unsecured personal loan carries less risk for the debtor because there is no chance of actually losing any asset. From the creditors point of view, however, an unsecured loan carries a bigger risk compared to a secured loan because they would have no security over the loan. Therefore creditors tend to charge a higher interest rate.
The advantage of an unsecured loan is that you will not have to worry about losing any of your assets because you are not required to put any collateral against your loan. But that is not an excuse for you to delay paying off your loan as soon as you can. Due to the high interest rate it is advisable that you start paying off your loan as soon as possible and as much as possible.
One of the disadvantages of an unsecured loan is that due to the fact that you do not have to worry about losing your asset, you might tend to adopt a relaxed attitude towards your loan and further end up getting behind on your payments. The higher interest rate also makes the amount of your monthly payment higher. So if you do not immediately start paying off your loan, you might end up accumulating more debt than before. Therefore it is recommended that you educate yourself to fully understand your loan terms so you will not end up being buried in not just debt but also all kinds of legal complications.
Generally a personal loan is designed to assist individuals in obtaining the cash needed for various purposes. So you might not want to misuse the convenience of obtaining a personal loan to accommodate your love for a luxurious lifestyle. It is advisable that you consider all options and learn to discipline yourself before committing to a personal loan.
by: Ask Bill
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