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Sunday, September 22, 2013

Tiding over financial problems with personal loans

Financial stop-gaps and purchases are achieved via personal loans
Personal loans are secured or unsecured 
By Sam Payn

Personal loans are a great way to fulfill a range of needs like purchasing a car, or else a diamond ring or a high end gadget. You can even use it to fund your college examinations. 

These types of loans can be broadly divided in to two categories namely secured and unsecured loans. They can also be repaid in easy installments while using the item itself. 

As you go further through this post you will be duly acquainted with the elaborate description of the two types of loans, the reasons why they are secured, the impact of credit scores on the borrower's chances of securing them and others.

Reasons why these loans are secured by borrowers

As already mentioned above, personal loans can be obtained for a number of reasons ranging from financing a car to education. However, in the recent past, borrowers have taken their aid primarily, to meet the following needs:

  • Debt Consolidation
  • Funding Holiday
  • Purchasing Furniture and Home Appliances
  • Wedding

Difference between secured and unsecured loans

Borrowers generally obtain the secured loans against collateral. A huge sum of money is borrowed which he can repay over a long period of time. The huge amount of money involved and the long repayment period trigger the potential risk of failure of payment from your end. 

In order to avert the risk, the lender is compelled to “secure” the loan against a property that you value so that it can act as a guarantee for him to at least recover the outlay. For instance, if you put your vehicle as collateral, the lender would take possession of it in case you fail to repay your debt. They are typically offered as mortgage or small business loans as the money required for these purposes is generally high. Other purposes for which you might need them include sponsoring your child's education or to arrange for a lavish wedding.

The unsecured loans, on the other hand, can be borrowed for a very short period of time as the amount of money involved is also lower than that of the secured loans. They involve greater risks for lenders as there is no collateral involved. The lender will not be able to reclaim the money through any property if you fail to pay the debt off. However, they are ready to take these risks as the principal is less and it can be repaid typically between 6 months to 10 years. They might be obtained for recovering shortfalls. 

To illustrate, you are buying a car and you think that you have the cash ready for the same. Nevertheless, much to your surprise you might as well find out that you're running a bit short of money while you're actually zeroing in on the car of your choice. This is when a short term unsecured loans might just be able to cover the shortfall for you. Similarly you can borrow them for funding a holiday or else buying a piece of jewelry as well.

Your credit scores

One of the crucial factors governing your chances of securing any type of loan is your credit history. A blemished credit history won't really stand in your way of securing an unsecured or secured personal loan. However the scores in your file reflect your previous repayment tendencies. A good score implies that you have been a regular with your debt repayments earlier while a poor credit rating implies just the opposite. 

As already mentioned it’s not absolutely impossible to obtain personal loans with a discouraging credit history, but you should be prepared to shell out high rates of interest as the ones paid by those with decent credit scores. It's only fair since the lender is taking an increased risk by offering loan to someone who doesn't exactly have a decent credit history to back his credentials as a borrower.

How to choose a reliable lender

A casual online search will throw up the names of a wide array of lenders willing to provide loans with affordable rates of interest. However as a diligent borrower it would be your responsibility to conduct thorough research in order to avail the best services for yourself. There will be not one, not two but a number of factors influencing your choice of a lender:

  • Go through the websites properly. Have a look at the kind or rates provided by them. Compare all these rates to determine who among them is providing you the most affordable deals.  
  • Comparing the rates of interest will not be enough in this regard. If you're particularly inclined towards availing the services of online lenders, make sure that you are establishing the credentials of the lender properly. Consult good review sites in order to ascertain whether the lender whose services you are considering is featuring prominently or not. Try to gather as much market review as possible in this regard. Ask friends for help as well.
  • Once you have found out about the reputation of the lender and are ready for an agreement, you should read the documents carefully before signing. Clarify your doubts without fail before putting your signature on those papers.
  • If you are someone seeking the aid of these loans with a poor credit history, please take the trouble to find out about the exact credit score that you have earned as the rate of interest would be decided accordingly. Thus, you're well set for a worthwhile deal ahead!

About the author: Sam Payn's flair for writing about financial topics can hardly be contested today. Among the modern content writers he is one of the best when it comes to producing topics on short term loans, insurance and investment banking. He owes his success to his five years of constant learning in the content industry. 

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