Personal loans are considered to be among the best way to finance a project or consolidate a debt. These loans are not like the credit cards which have varying interest rate and monthly payments. Personal loans may be secured and unsecured.
Secured and Unsecured Personal Loans
There is only one factor that differentiate secured from unsecured personal loan. But this lone factor has several effects. First, what sets secured loan from unsecured is the required good credit standing. When you take an unsecured personal loan, the lender will not make a fuss about your credit score as it is not part of the requirements. What the lender would consider foremost is your financial capacity. That is, whether you have a stable income to pay off your monthly dues.
But because lenders neither look at your credit score for unsecured loans nor ask you to pledge a valuable possession to secure payment, they are taking a high risk in lending you the money. As a direct consequence, the lender will charge you with a higher interest. With regard to the terms of payment, this vary per lender. Some lending companies even offer short term unsecured personal loans with bad credit with an option to renew.
Secured personal loans, on the other hand, give you the benefit of being charged with a low interest rate. The amount of your monthly payment depends on the term of your loan. If you prefer a short term, you will save a lot during the entire period of paying off your debt. But this means that the amount of payment monthly will be slightly higher. Too, before you get this perk, you must have a good credit standing.
Regardless of the loan you took, it is important to pay the loan on time to avoid penalties and hurting your credit rating. Read your lender’s payment terms carefully before signing up for anything as most problems people face when it comes to paying back their loans is that they missed some terms. Make sure that you talk to your lender about the fees as well to avoid surprises later on, most especially when paying your loan back.