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At some point, everyone needs to take out a personal loan. Personal loans are for general purposes, so they don’t necessarily need to be pointed. However, there are still common reasons why people take them out. Whether it’s for college, a new home, a car, remodeling or to finance a new business, you want to make sure you take out the right type of loan. When it comes to personal loans, there are generally two types: secured and unsecured. Secured Loans A secured personal loan is backed by some type of collateral. The collateral can be your home, boat, car or anything you have of value. If you take out a secured personal loan from a bank, they will typically have an appraiser come determine the value of your collateral. Based on the appraisers estimation, the bank can loan you that amount of money. Secured personal loans are often easier to qualify for because of the collateral that is behind it. If payments continue to fail, the bank can reposes whatever you put up for collateral. These types are designed to provide the borrower with low interest rates and a long repay period (between 20 to 30 years). They also give out the highest amount of money, normally over $50,000. With this much money, people take out this type of personal loan for a mortgage, to finance a new business or as a student loan. Unsecured Loans Based on the definition of a secured loan, you’ve probably figured out what makes a loan unsecured. When taking out an unsecured personal loan, the borrower offers no collateral. These are riskier for the party handing out the money because if the borrower doesn’t pay back the debt, they have no collateral to reposes. To compensate for the risk, interest rates for this type of personal loan are always higher. Not only are the interest rates higher, but they are also harder to get. The borrowers credit score is the most important thing to lenders. The better credit you have, the more the lender trusts you, and the more likely you are to get it. With unsecured personal loans, a smaller amount of money is taken out (anywhere from $500 to $50,000). With a smaller amount lent and higher interest rates, the borrower is expected to repay it quicker than they would with a secured version. Personal unsecured loans are used for a wide array of purposes including the purchasing of new appliances, remodeling the home and financing for an RV or boat.
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