When it comes to secured and unsecured loans, the differentiating factor comes down to collateral. A secured loan will usually require you to put up some form of collateral while unsecured loans do not. In terms of personal finance, unsecured loans are usually the more common of the two but since they are effectively backed by your creditworthiness, they are often the most difficult to get approval for.
However, it is worth noting that certain online lenders are willing to provide unsecured loans, even if you have a poor credit score, and one of the best ways is to find your best bad credit loan through iPaydayLoans. In this article, we are going to quickly dive into everything related to these two forms of lending, which should help you make the right decision the next time you need to borrow funds.
How Unsecured Loans Work – A Detailed Breakdown
As mentioned before, unsecured loans don’t require you to put up any collateral, which means that loan approval will usually be determined by your credit score. For some borrowers, especially those with a less-than-stellar credit rating, this can often mean having to pay more interest than if they took out a secured loan.
However, this also means that they won’t end up losing an asset like a house or car. Some of the moon types of unsecured loans include personal loans, installment loans, bad credit loans, payday loans, etc. These types of loans can often be acquired from banks, credit unions or online lenders.
Eligibility Requirements: To qualify for an unsecured loan, you are usually expected to have a credit score that is at least fair, which typically starts from around 600, on average. However, there are still some online lenders out there that are willing to accept bad credit applications. These lenders often make decisions based on alternative data like your monthly income, debt-to-income ratio, etc. If you want to learn more about these types of loans, you can head over to author Leslie Culver of iPaydayLoans, whose page contains more information about loans.
Rates & Terms: Unsecured loans typically come with fixed interest rates that often range between 6% to 36%. In most cases, the higher your credit score, the lower the interest charged will be and vice versa. These loans also need to be repaid in fixed monthly installments with repayment terms often going up to 36 months.
Repayment: Unsecured loans come with less risk to borrowers because failure to repay only results in your credit score being affected, rather than your assets being repossessed. In most cases, lenders will offer alternative repayment terms like lowering or even deferring your monthly payments. However, if the loan goes into default, then it may be sent to a collections agency, which can end up taking you to court for the remaining balance.
How Secured Loans Work – A Detailed Breakdown
Secured loans will usually require you to put up some form of security to secure approval like a car or house. The benefit of these loans is that the presence of collateral will typically help you to secure lower rates and higher loan amounts but failure to make your repayments would mean losing your asset.
Some of the most common secured loans include; mortgages and auto loans, which can be typically applied for at banks and credit unions. However, there are some online lenders that provide title loans, which can be obtained by putting up a vehicle as collateral. You can usually find these lenders by using reliable credit broker services like iPaydayLoans.
Eligibility Requirements: Compared to unsecured loans, these loans are usually significantly easier to qualify for because the asset essentially lowers the level of risk to the lender. So, while having a good credit score helps, even if it is less than ideal, you still have a relatively high chance of securing approval.
Rates & Terms: These types of loans also come with lower APRs than unsecured loans with the rates offered often being determined by the value of your collateral. For instance, if you borrow a loan using a car as collateral, the value of the vehicle will influence how much you can borrow, the rate you qualify for, as well as what repayment terms you will be offered. However, you can often expect the loan period to extend for up to a few years.
Repayment: If you fail to repay a secured loan, the problem will often be twofold. Failure to make timely repayments can not only lead to your asset being repossessed but can also result in your credit being affected. Even missing one payment can lead to your credit score dropping by as much as 100 points.
Should You Borrow a Secured or Unsecured Loan?
If you have a less-than-stellar credit score, you are often better off applying for a secured loan. Most unsecured loan providers will typically factor in your creditworthiness when making a decision on your application. So, if your credit score is below average, you will need to provide some form of collateral like a car or house to help reduce the level of risk to the lender.
For everyone else that has a good credit score, the answer will often depend on your personal circumstances and what you intend to use the money for. Secured loans come with lower interest rates, longer repayment tenures, as well as higher borrowing limits, which makes them ideal for large expenses or purchases.
However, the processing time for these types of loans will often be longer because the lender will first need to determine the asset’s full value. On the other hand, if you don’t need a sizable loan amount and would prefer to get the money as quickly as possible, then borrowing an unsecured loan is the preferable option.
Either way, regardless of which loan you choose, you should only ever apply for funding if you are confident of your ability to pay it back on time. This means taking the time to review your monthly budget and comparing the loan rates, fees and terms on offer before making a final decision.
In this respect, it often helps to use a loan broker site like iPaydayLoans, which should allow you to view multiple loan offers and get the best deal possible. It is also a good idea to set up autopay on your bank account once you receive your loan. This will ensure that your loan repayments are deducted automatically each month without fail, thereby reducing the risk of default.
Where Should You Apply For A Secured or Unsecured Loan?
As mentioned before, you can often apply for funding from banks or credit unions. These financial institutions typically offer reasonable interest rates and tend to offer extended repayment terms.
However, the problem with such traditional lending institutions is that they are only willing to approve borrowers with a credit score that is at least fair, if not good. In such cases, you have the option of finding an online lender that is willing to provide you with funding, despite your low credit score.
A good place to start would be iPaydayLoans, as the online credit broker has an extensive network of lenders, many of whom would be open to approving your loan application for an unsecured or secured loan.
It also helps that the process can be conducted online, requires very minimal documentation and can provide you with a decision on your loan application in just a matter of minutes.