Secured vs. Unsecured Personal Loans: An Overview
A market report issued earlier this year found that more and more Americans are turning to secured and unsecured personal loans to finance a variety of purchases and meet emergency expenses. Instant personal loans are more affordable than other fast cash alternatives and offer numerous attractive features. In choosing between secured personal loans and unsecured personal loans, borrowers should take into consideration their financial needs, anticipated projects, repayment ability, and credit profile. What follows is a discussion of the differences between the two types of payday loans:
Approval requirements:
Unsecured personal loans have rigorous credit requirements. To be eligible for such a loan, borrowers need not be homeowners; rather, they must have good credit since approval will hinge upon their credit score. Applicants will have to provide the following information:
Unlike unsecured personal loans, secured personal loans require the borrower to put up collateral to provide a measure of protection to the lender. The security interest pledged is the item borrowers’ purchase or their property (whether owned or mortgaged). One type of secured personal loan is the cash advance loan, which is usually issued without a credit check due to the fact that borrowers provide security in the form of a post-dated check.
Repayment terms:
Unsecured personal loans generally offer flexible repayment terms ranging from 12 to 60 months. Secured personal loans usually require fixed monthly payments of principal and interest and have a repayment period of up to 10 years, depending on the amount borrowed.
Uses for the two small personal loan types:
Instant personal loans can be utilized for urgent expenses and for almost any purpose, including the following:
Generally-speaking, unsecured personal loans are intended for short-term purchases with a small dollar amount. Examples of expenditures carried out with this small personal loan include a printer, dental bills, an air conditioning unit, or auto repair.
Borrowers seeking to finance long-term, big-ticket items should consider taking out secured personal loans. Home improvements and debt consolidation are the two projects that the majority of borrowers with secured personal loans choose to finance. This type of personal loan is also ideal for individuals who have been turned down by their mortgage company as a result of poor credit.
Typical loan amounts:
There is no minimum amount for unsecured personal loans. The maximum loan amount is determined by the borrower's gross salary and creditworthiness. The average sum borrowed is approximately $2,500. As for secured personal loans, the amount can range from $3,000 to $250,000 (i.e., Wells Fargo).
Loan periods:
For the two instant personal loan types, terms depend on the loan amount and vary widely.
Interest rates and annual percentage rate (APR):
Interest rates on unsecured personal loans vary according to the borrower's credit history and from one bank to another. Average interest rates on unsecured personal loans are higher than those associated with home equity loans. Secured personal loans boast a fixed APR and variable rates. Since borrowers of secured personal loans pledge collateral as a form of security, they benefit from lower interest rates and finance charges than those with unsecured personal loans.
Instant personal loan providers:
Consumers can obtain a small personal loan from one of the following entities or organizations:
- Savings and loan institutions
- Specialist finance companies
Since the vast majority of credit unions issue unsecured personal loans and offer lower rates than the other loan providers, prospective borrowers should start with them.