Secured vs Unsecured Loans - We Weigh Them Up
Quick personal loans appeal to different people for all sorts of reasons, although the underlying need to borrow money quickly usually results from an unexpected financial shortfall; such as a forgotten bill or a broken down car. Credit cards are one potential solution, but they are an expensive option and many people instead prefer to take out a personal loan.
Homeowners are in a privileged position in that they can raise capital against the value of their house (i.e. the loan is ‘secured’). On a practical level this means that the borrower will be offered preferable interest rates; as the provider knows they will get something back if repayments are defaulted.
However, not every homeowner wants to put their property up as collateral and there are many more people who aren’t in a position to. The burgeoning number of quick personal loan companies in the US today caters directly to such people. As a rule of thumb; borrowers can expect an unsecured loan to cost one or two percent more than a secured loan. You will also be offered substantially less money. Nevertheless personal loans are both quick and relatively hassle-free to organize. Interest rates vary wildly and it’s worth shopping around to find the best deal (banks and credit unions generally offer better rates than lending companies).
If you’re in regular employment and have a good credit history there should be nothing standing in your way. However, before you sign on the dotted line it’s important to read the Terms and Conditions carefully to ensure that there are no hidden extras (such as inflated administration charges). Ask if the interest rate is fixed or variable and establish at what point it is capped. The lender is under legal obligation to explain all the finer points of the loan clearly and if you aren’t convinced that you’re in safe hands; walk away.
It’s also worth bearing in mind that loan salesmen often work on a commission basis; so it may well be in their interest to persuade you to borrow more than you actually need. Once your loan has been accepted; make sure you don’t default on payments and seriously consider starting a future saving plan.