Most of us have taken out car loans and may have already obtained a mortgage loan to make that special all important first time home loan purchase. However, many of us rely on our savings accounts or credit cards to make other types of purchases and do not know about loans. Getting a loan may be the right choice for you, if you know all about them and make the right choice.
Secured Loans
A secured loan is one that is made with some type of collateral attached. This collateral can be an automobile, but most often is the person's home. If an individual takes out a secured loan and does not pay it back, that collateral can be taken by the bank or finance company. Usually a secured loan is one for a higher dollar amount. These personal loans are many times used to pay for a wedding or some other large event or purchase in one's life.
Unsecured Loans
An unsecured personal loan is very simple one to explain to just about anyone. This loan is made on the signature of the individual involved with no collateral needed. Many times these loans are only made to individuals who have good credit scores or good credit history. There is no backing for the money, but those who have maintained good credit histories more than likely can be counted on to repay the money. Most unsecured loans are used for short term needs such as vacation or holiday spending.
Who Lends the Money?
After learning all about the different personal loans, you may be wondering who makes these loans. The usual lender is a bank or a finance company; however, some personal loans are being made by payday loan companies or cash advance entities. This can be a bad choice for a personal loan, unless you have bad credit and really need money. These types of loan companies charge huge interest rates, many times 100 percent or more, so in the case of a 1000 dollar personal loan, an individual can find themselves paying back 2000 dollars or even more.
When a regular bank or finance company makes the loan, the individual will usually receive a payment book in the mail or monthly statements indicating their monthly due date and the amount owed, with the balance still owed. For payday loan companies, the payments are usually required to be attached to the person's bank account, so that the company can debit the amount automatically.
Personal loans, as stated above, can be taken for many different reasons. If you are interested in taking out a personal loan, take the time to review all of your options, whether you use a traditional lender or a high interest rate lender. You will want to know all the details before making this important decision, especially when you are asking yourself what is a personal loan?
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