Usually, the loans people take are in the name of the business or some entity where they also put in collateral for security. Such loans are secured so that in case of failure in payment of interest or loan repayments, the creditor can seize the asset and settle the amount.
Although, personal loans work a little differently such that you can secure the loans without any given asset at higher interest rates. The processing time is also shorter as compared to other equity loans.
How Do You Get a Loan
Firstly, you are required to fill out an application; once that is approved, a lump amount of money is sent to your bank account. The duration of this transfer can vary, and if your credit record is good, it can happen as quickly as in 24 hours. Sometimes it also takes weeks before you get the money in your bank account. And once the personal loan has been acquired, you will be required to pay the monthly instalments. Usually, the loans have fixed interest rates, so your instalment amount remains the same throughout. And in case you wish to have a varied system, you can talk it out with your creditor.
With secured loans, your asset is a safety measure for your creditor. In the case of unsecured loans, one can either provide a savings account or a certificate of deposit as collateral. But, if you do not have any of the pre-mentioned items, you need not worry. You can also get a friend or family member to co-sign your loan. It means that if you fail to repay your principal amount, the bank can ask the person co-signing your loan for money.
You also have other options like taking a loan against your house, but as the statistics show, the risk analysed is a lot when one keeps their houses at stake. Therefore, getting a personal loan is always better than getting a loan against home equity.
Even if one tries to get a loan from a credit card as it is an easy money withdrawal, the interest rates are sky-touching! Hence, it’s wiser to take a proper loan from a bank where you can keep a check on the interest rates and can also borrow money in a much larger amount. Not to forget, even credit cards have withdrawal limits.
Secured Personal Loan Vs Unsecured Personal Loan
In both cases, you get a loan; though, sometimes getting an unsecured loan might feel tempting. So, before you make your decision, look at the advantages and disadvantages of both:
- Interest Rates: The interest rates vary according to your trust and credit record with the bank. As such, if you apply for a secured loan with the bank since you are putting in the collateral, the trust that you will be repaying the money increases. As a result, the interest rates are lower than those in unsecured loans.
- Amount of money: You get a larger amount of loan against collateral. In unsecured loans, the bank tries to be a little safe and offers comparatively less amount. And even if it offers a lump-sum amount, the duration is kept short. As such, banks try to authorise loans that are close enough to the collateral value.
- Terms and conditions: You will find that the bank will be more lenient with you in the cases of secured personal loans. Here, even if you forget to pay interest, you will get reminder calls and will be given a little relaxation instead of direct notices.
- The Risk Factor: A loan itself involves a huge risk as it is someone else’s money you are gambling on. Although, many believe that the risk of losing a whole asset is higher in secured loans. In unsecured loans, no such risk is involved, and the bank cannot seize any of your property or assets without legal procedures. All this only happens if you fail to repay your loan with interest.