When you find yourself in need of cash and borrowed some from a bank, a moneylender or a friend, you are technically taking out a loan. This “loan” is the amount you borrowed and you need to pay this at a certain amount of time with an interest fee.
Each one of these sources comes with their own pros and cons depending on your payment terms, interest fee, and the requirements. However, if you are looking for a quick and worry-free way to get cash, a moneylender will help you out. Moneylenders are more relaxed when it comes to the requirements borrowers need to present. If you have a bad credit rating, some moneylenders may even lend you money without asking a lot of questions.
However, when it comes to the personal loans you can request from moneylenders, you have a lot to choose from. There are personal loans which do not require you to pledge anything if you are unable to pay your loans. Others require it.
What exactly are these personal loans?
Secured Loans 101
Secured loans are loans which will require you to pledge an asset of yours depending on the loan you are seeking. This asset is what is known as the “collateral.” When you sign your personal loan, you are basically pledging that the moneylender can repossess whatever you pledged to them should you be unable to pay your loan in any way.
However, when the asset or collateral is repossessed, it is possible that you will still need to pay what you owe to the moneylender. Once they have your collateral, the moneylender will sell the property to clear off your loan. Should the amount be short in any way, you will still need to pay whatever is left in a certain amount of time.
The amount you can borrow through secured loans depends on the collateral you will pledge. What is brilliant with secured loans is the fact that the interest rate is very low since the lender is assured through your collateral.
A good example of a secured loan is a mortgage loan, like a car or home loans.
Unsecured Loans 101
Unsecured loans, on the other hand, do not require any collaterals to be signed off which the lender can seize when you fail to pay your dues.
To apply for an unsecured loan, you need a good credit history and a good and stable income. For those who have a poor or bad credit history, some moneylenders may still lend you some money but it will be on a case-to-case basis. Unsecured loans are also very small when it comes to the amount you can borrow since the lender does not have any collateral that could be taken from you should you fail to pay.
Unsecured loans are high-risk loans since lenders do not have an assurance that would support your loans. The amount you can borrow also depends on your credit history, capacity to pay, your character, and your current financial stability. Interest rates also depend on these criteria and if a person wants a larger loan, they must have a good credit history.
A good example of unsecured loans is a personal loan.
Which Should You Get?
Both secured and unsecured loans come with their respective pros and cons. However, if you have a bad credit rating but you do have an asset that can be used as a collateral, getting a secured loan is the way to go. Since you will be able to pledge these assets to the lender, the lender will not see your loans as a high risk one.
Secured loans are also good because you have more chances of getting higher loans; but, you must consider what you can borrow and pay. You must also pay attention to the interest rate, payment terms, and the total amount you need to pay every month.
If you are not intending to borrow a lot of months, unsecured loans are the way to go. Just like secured loans, you need to consider the interest rate, payment terms and total payment amount before you borrow.
Reminder: Credit Reporting
Every loan opened, paid, and defaulted are always reported to key financial authorities, like the Credit Bureau Singapore. These agencies, especially CBS, take note of all your loan activities and put it on your credit report. Should you default on your loans – whether secured or unsecured loans – lenders would take a note of these and the authority will list it on your credit report.
These notes can be very bad, especially if you are going to take another loan out so you must always pay your loans on time.
When it comes to loans, it is easy to discern which one is a secured loan and which one is an unsecured loan based on the terms you need to agree on. Secured loans will always have a collateral or guarantee that will be taken by the moneylender should you fail to pay your loan. It will then be sold off to pay the amount you owe them and any amount that is missing should be paid by the borrower.
Unsecured loans, on the other hand, comes with high risk and requires that borrowers have a good credit history before they apply. The low or bad your credit history is, the lower the chances your loans will be approved.
However, before you take any one of these loans, make sure that you have considered all available avenues to fund your needs. Just like any commitment you sign throughout your life, loans must not be taken on if you cannot afford it and stick to it every month. Loans have long payment terms so it could be a problem to your budget in the long run.
So, make your research first and consider all your options before taking out a loan. If you are in doubt, don’t be afraid to ask the moneylender you will approach because they can offer you flexible offers that may fit your needs.