Should You Apply for a Personal Loan?

Should You Apply for a Personal Loan?

Do you need a considerable amount of money for a specific reason? If so, you can go through conventional borrowing channels and check out collateral-backed loans, or you can apply for a personal loan. Let’s explore both options in-depth to help you make an informed decision.

What Are Personal Loans?

Sometimes they are called signature loans because that is the only collateral you need. It’s as simple as signing your name and promising to repay the note. You don’t have to put up your house or car to qualify for financing.

Collateral Lending

When you go to a bank or local finance company, they want more than your signature, to lend you a significant amount of money. They want something of value you own, that they can seize in case you default. In other words, if your car or furniture is paid off and you use it as collateral, the lender owns your property if you stop making payments for a specified amount of time.

Risk Factors

Many lenders want to lower their risks, and that’s why they want collateral. When you apply for a personal loan, the lender takes greater risks because there is no property to seize when the borrower doesn’t meet his or her obligations. To offset this risk factor, most unsecured lenders charge higher interest rates. However, these rates can vary a great deal according to the lender you choose.

When Unsecured Loans Make Sense

Sometimes you need to apply for a personal loan because it’s the best or only option. If you don’t have collateral and you really need or want the money quickly, an unsecured loan is a good idea. Most personal loans are fast and don’t require a lot of paperwork. However, you may pay higher interest rates, but some lenders offer rates that are fair and reasonable.

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