You have heard that an unsecured personal loan is the best way to go for the personal loan you are seeking, but do you that there are both advantages and disadvantages to that? After all, at the end of the day, we all want to save money on any kind of loan we get, so it is to your benefit to understand both sides of this coin so that you can make the most cost effective decision possible for your unique situation.
First of all, let’s look at personal loans in general. A personal loan is exactly as the name implies, and the funds can be used for any purpose that you want. It could be used for a new car, a vacation, a big screen plasma TV, debt consolidation, or whatever you want. There are usually no strings attached to it in terms of what the money can be used for.
But now we need to get specific as far as what kind of personal loan we get. There are basically three types of these and they have varying conditions, pros and cons.
The first type is the payday loan, sometimes called a cash advance loan. This is by far the easiest one to get since all you need is identification and a paycheck stub or two to prove that you are employed. This type of loan can usually be approved in a matter of hours because no credit check is required.
But on the downside, this type of loan usually has very high interest rates, and is due on your next payday, which is usually only 2 weeks away or a month away. It is very difficult to extend them beyond that, and if you do, the interest rate is sky high. But if you need money in a flash hurry, this is the way to go.
Next is the secured personal loan, which as the name implies, is a loan that is secured through some kind of asset. It might be a down payment on the loan although that is going away for the most part. More likely, the security or collateral is some kind of asset that you own, such as a car, household furnishings, perhaps even your home. In other words, if you default on the loan, the security or collateral that you put up could be taken by the lender. Although the lender does not want your stuff, he can take it if you default, and since his risk is lower as a result, the interest rate on this type of loan is notably lower.
Last is the unsecured loan, sometimes also referred to as a signature loan. Since you are not putting up any security or collateral on the loan, the lender’s risk is higher which translates into a higher interest rate. Remember, the interest rate is a reflection of how much risk the lender feels he is taking by approving your loan request.
Both the secured personal loan and the unsecured personal loan can take from anywhere from a couple of days to a week or more to get either approved or rejected. If you need the money right away, the payday loan discussed above may be a better choice, but if you can wait through this approval process, you will undoubtedly get better terms, better interest rates, and most importantly, more time to pay the loan back than needing to pay it back entirely on your next payday.