Unsecured Loans vs. Secured Loans

It is not uncommon to find yourself in the situation where you need extra cash. Sometimes unexpected things just happen! When people find themselves in an unexpected situation their first thought is usually to take out a loan.
The most common loan options are secured and unsecured. Both types help out with finances for a temporary amount of time.

Unsecured Loans

Unsecured loans differ from secured loans because they are given based on credit reports, income, and other similar factors. However, they are known for having higher interest rates and strict repayment terms. If you do not pay this loan back on time it is going to reflect negatively on your credit report. There are a few different types of unsecured loans that are mentioned below:

   Credit Cards

Credit card companies trust their customers to pay the money back but do charge interest. Your credit rating will be lowered if you do not make the payments on time.

   Personal Loans

Personal loans are given out to people who have solid credit scores. They are also known for having extremely high interest rates.

   Payday Loans

Payday loans are given to give you an advance on your paycheck. On your payday you are responsible for paying back the loan as well as any interest that has accumulated. Payday loans are only recommended for emergency situations.

Secured Loans

Secured loans are taken out when you have an asset available to be used for collateral. The loan amount varies based on the value of the item that is being used for collateral. It is important to pay back your loan because if you do not the lender will become the owner of the item. Several types of secured loans are listed below:

   Mortgages

Mortgages take place when people are purchasing real estate. Banks automatically use the property as collateral and pay for the entire cost up front while the individual is responsible for making payments until they have fully paid the loan amount and interest back to the bank.

   Car Loans

Car loans work the same way as mortgages you are just purchasing a different item.

   Pawn Loans

Pawn loans simply use various items such as jewellery and luxury watches for collateral. When you choose to take this route you do not have to worry about it affecting your credit report. If you are looking for a pawn loan you may want to consider Pawnbank.