Unsecured personal loans
An unsecured loan is a loan given to a borrower without any collateral. Unsecured loans are also called unsecured borrowing. The most common form of unsecured lending is credit cards.
If the loan is secured, the lender takes minimal risk. One of the safest types of loans for the lender is mortgage – in case of non-payment, the lender can take the apartment. Unsecured loans are a big risk for the lender because if the borrower does not repay the debt, the lender most often loses money.
The main reason why lenders offer clients unsecured loans is high competition. The banking industry is a market for the buyer since if necessary, a person has the right to choose among the many options the most favorable conditions for him or her. Making the procedure of registration as convenient as possible for the borrower (including eliminating the need to deposit collateral and attract guarantors), the bank gains a competitive advantage until the rest of the market players act in the same way.
The features of an unsecured loan include the following:
- Conditions are always less favorable than on a secured loan: the repayment period is shorter and the interest is higher;
- Unsecured loans involve a potential borrower providing a proof of income. Some institutions may lend without such a proof, but the interest will be so high that such a loan would be unprofitable for the borrower;
- The amount of unsecured loan is limited by a low enough level – the borrower will not be able to get a lot of money;
- It is impossible to get a loan without registration. At the same time, financial institutions are actively lending to citizens with temporary residence permits and stateless persons but only for a period not exceeding the validity period of temporary registration (usually 3 months);
- It is also impossible to get an unsecured loan if you have at least a minimally damaged credit history. If there is enough information about at least one delay, the bank will refuse;
- The bank may oblige the borrower to purchase an insurance policy together with an unsecured loan, compensating for the excessive risk with additional income.
The main advantage of an unsecured loan for a borrower is the speed of processing: it will take a maximum of 3 days to get a decision. Mortgage loan requires more time since there is a need to assess the collateral. Another plus is the ability to use the money at one’s own discretion, which compares favorably with unsecured loans from targeted loans.
The main drawback is the high interest rates – the borrower is able to level using a surety. A surety can be a relative or friend (or several people) who have a suitable income and a good credit history.
Secured personal loans
This type of loans is characterized not only by the ability and desire of the borrower to pay off the debt to the end but also by additional guarantees that the bank will receive its money in any case. In most cases, the role of a guarantee is collateral, and often the bank gives out money on credit just for its purchase. Commodity loans, car loans, mortgages are all examples of secured loans.
However, there are also such secured loans when the borrower provides as guarantees the property that was already in his or her possession at the time of the transaction. As a rule, we are talking about large amounts.
Secured loans are taken for several reasons:
- if you are “not a perfect” applicant and the deposit compensates your shortcomings;
- if you want to get a lower rate than you are offered on an unsecured loan in the same amount;
- if you need a large loan amount, and the bank doubts that you can repay it.
Before applying for such a secured loan, you should clearly understand that if the repayment of the debt doesn’t go according to plan, the bank will have the right to take away the property that you provided it as a security deposit and sell it.
The advantages of secured loans are that they are usually available for large amounts and interest rates are lower than those generally available on unsecured loans, however they are secured by your property, and this should cause concern.
Your loan amount will depend on your credit limit and, additionally, on the value of your property, but with fixed monthly payments you will find budgeting much easier than with a flexible repayment plan with variable interest rates.
Pawn shop loans
A pawnshop is a financial institution that lends money on the security of property: from equipment and jewelry to real estate. Services of such organizations remain the most expensive in their segment, bypassing even fast loans online, the real interest rate can reach 90%. Despite this, the flow of customers does not decrease, which indicates some of the benefits of this method of solving financial problems. Often pawnshops are contacted for the following reasons:
- you urgently need money for a short time;
- there is no way to get a loan from a bank;
- there is value that can be used as collateral.
These conditions must be integrated, otherwise contacting a bank or microfinance organization will be much more profitable than borrowing from at a pawnshop. The difference in these services may not be obvious, but the overpayment on a pawn shop loans significantly exceeds the performance of other financial organizations. However, here the client can pledge the thing without subsequent obligatory redemption, which does not impose any obligations on him or her.
As already mentioned, most often consumers use household, computer and other equipment as a collateral. In addition, you can use:
- jewelry, products made of precious metals (gold, silver, platinum);
- clothes and shoes (leather, furs, exclusive fabrics);
- furniture, home decoration, expensive dishes;
- movable property (car, motorcycle, agricultural machinery) and others.
Each lender determines a definite list of collateral things, but in fact you can hand over any thing that has value in the market and can be sold. Its value is determined by a special pawnshop employee – an appraiser accredited by the institution. The assessment takes place right on the spot, but if we are talking about bulky items (furniture, a car, etc.), an appraiser can go to the place with the client. In this case, the payment for the services of the appraiser will be deducted from the amount of the collateral.
The peculiarity of estimating the value of rented things is a strong understatement of the real price, which often differs from the market by 50-60%. This variation in price is explained by the desire of the lender to get the benefit even without paying interest on the loan, insuring against the case of non-payment, which happens quite often.
Only after signing the contract, the pledged thing is transferred to the creditor for safekeeping, and the client receives the required amount of money. The procedure takes no more than 30 minutes, and the client receives cash, which seems very profitable.
Pawnshops remain popular with U.S. clients at all times, regardless of economic crises and the political situation in the country, which indicates their relevance and the presence of positive qualities, such as:
- simplicity and speed of obtaining a loan;
- the opportunity to receive a small amount of money;
- an opportunity not to redeem a collateral.
Despite this, pawnshops have significant disadvantages that each client has to know:
- overpriced service costs;
- undervaluation of collateral;
- short loan terms.
Home equity loans
Mortgage loan is a long-term loan provided to a legal entity or individual by banks or other financial institutions on the security of real estate: land, industrial and residential buildings, premises, structures.
The client immediately becomes the owner of the home. But, if he or she violates the terms of the contract, the lender can seize the property, sell it and send the proceeds to repay the debt.
There are 3 main types of mortgage loans:
- for the purchase of housing from the developer;
- for the acquisition of real estate in the secondary market;
- non-targeted loan secured by an apartment already held by the borrower.
Five benefits of targeted lending:
- A real opportunity to purchase housing without a long wait. After selecting a mortgage object and approving it by the lender, an agreement is concluded, according to which the lender pays the value of the real estate, and the mortgagor becomes its owner.
- Financial planning and income distribution. Before concluding a mortgage agreement, a monthly installment is calculated. After comparing with the total income of the family, it becomes clear how it will affect the quality of life.
- Reduced rental costs.
- Possibility of refinancing – transfer of a loan to another bank with a reduction in interest rates.
- Early repayment of mortgages without fines with an increase in income.
The disadvantages of mortgages:
- The main disadvantage of a home loan is overpayment. This amount consists of interest, insurance premiums and bank commissions;
- Until the repayment of the mortgage, the borrower has only the right to ownership of housing. He of she cannot give, sell or otherwise dispose without the consent of the bank. Even major repairs and other major changes can be made only after discussion with the lender.
Credit card cash advances
A credit card is more convenient for everyday expenses than a bank loan. Firstly, unlike a loan, you can use “card” money in parts and only when it is needed. Secondly, you do not have to pay for a credit card, and the bank calculates the interest on the loan issued properly. It is most advantageous to use a credit card in a distribution network. In this case, you can use the bank’s money for free and also receive additional income. Within the grace period, the bank sets a symbolic interest rate for using a loan – not more than 0.01%.
If you regularly need cash, choosing a card is more difficult. There are usually no credit cards with free cash withdrawals. As a rule, they will immediately charge you a decent commission. In most cases, you will have to pay even to withdraw your money from the card. Transfer to another card will not help, the bank will take the same commission for it as for receiving money from an ATM.
To save money, get a card on which you can intercept a little cash from the bank without a commission. You still have to pay but much less than with a commission. Cash withdrawal is not included in the grace period, but if money is needed for a couple of days, then the overpayment will be miserable – less than 0.1% per day. And you need to pay off the debt as quickly as possible because you can run into fines.
Getting a loan online through the Internet is quite simple. You will need the simplest documents, free time and devices with stable access to the network. To order a credit card online, you need:
- Choose the right services and make sure that you meet all the requirements put forward by potential customers (have reached the appropriate age, have a steady income, etc.);
- Go to the official website of the institution;
- Fill out an online application for a credit card;
- Wait for the inspector’s decision and get the card.