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Personal Loans

Personal loans can be used for just about anything. You can apply for a loan to buy a car, sponsor your family’s annual vacation or even purchase a home. There doesn’t seem to anything out of the ordinary or wrong about doing that.

Unless you have no means of paying for it.

An important consideration before getting a personal loan is knowing how much you can afford to pay for. Smart financial management will demand nothing less. If you cannot afford to pay for it, then don’t get one.

Types of Personal Loans

There are many types of personal loans but you can actually group them into to: secured and unsecured loans. It is not really a matter of what you want to take out but what the circumstances qualify you to apply for. Both of these loans have characteristics that may be granted only when you meet specific requirements.

secured vs unsecured loans

Let us define them both.

Secured Loans
The main characteristic of a secured loan is the presence of collateral. While loans are typically risky endeavors for lenders because of the possibility that they will not be repaid, this type poses a greater risk than the other because it usually involves a high amount. Because of this risk, the lender has to “secure” the loan to protect their investment. This security is tied with a guarantee that will give them the right to possess should the borrower be unable to pay back the full or partial amount of the loan. This assurance is in the form of a collateral – anything that the borrower owns that is of value.

There are various types of secured loans but the most relevant example is that of mortgage loan. It is typically more than hundreds of thousands and the borrower pays for it over a stretch of 20 to 30 years. The lender uses the home you just bought as the collateral that they can take in case you cannot pay the monthly mortgage anymore.

Ideally, a loan is classified as a secured loan when the borrower takes out a large sum of money – typically $50,000 or more. However there are cases wherein a loan with a small amount is considered as such because of the presence of collateral. A perfect example of this is a car loan. It is usually less than $10,000 but since the lender maintains ownership of the car and can repossess it when the borrower defaults payment, it is a secured loan.

A secured personal loan does not have to be taken out for the purpose of buying something that will automatically be considered as the collateral. It can be used to fund a student loan, start a business, finance a grand wedding, etc. As long as the borrower is required by the lender to come up with collateral, then it is classified as a secured loan.

Unsecured Loans
In stark contrast with a secured loan, this type is normally not associated with collateral to guarantee payment on a loan. This is made possible because the very nature of the loan revolves around a smaller amount and poses a smaller exposure for the lending party. This type of loan normally is between the range of anywhere between $500 to $50,000. Unsecured loans also have shorter repayment time frames which further adds to the security of the loan being paid-off in a shorter amount of time. Some personal loans classified under this need to be repaid in a couple of months.

The deal with unsecured loans is the higher interest rate that the lender will impose on the borrower. In the absence of collateral, this is the only way that lenders can protect themselves from the nature of this investment. Unsecured loans include credit card debts, payday loans and signature loans. All of them have high interest rates and should be paid in a short amount of time.

There are some gray areas in classifying personal loans between being a secured or unsecured one. The car loan is a great example of that. But technically, a secured loan is in need of collateral that the borrower legally owns. Should there be no collateral involved, it becomes an unsecured loan that is given a high interest rate by the lender.

Debt Settlement for Personal Loans

If you have been falling behind on your debt payments and you are unable to cope with them, debt settlement may help. By hiring a debt relief consultant or a credit counselor, they can help you assess your financial standing, identify your payment capabilities and negotiate with the lender to allow you to pay only for a percentage of the original balance of the debt. They will also aim to lower the interest rate and waive off any penalties brought about by your late payments.

Not all types of personal loans can be enrolled in a debt settlement program. This will depend on the company that you will hire to help you settle your debts. Usually, secured loans cannot be enrolled in this program.
apply now for debt relief help
Should you wish to know more about debt settlement, give us a call and we will be glad to provide assistance. NationalDebtRelief.com is here to help you get a favorable agreement with your creditors. Fill out the short form on this page so we can have someone get in touch with you to discuss your financial situation.

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