Personal Loans: Helpful Tips to Clarify Misunderstandings

By: Sheldon Amerson

Personal loans come in two varieties: secured and unsecured. Secured personal loans are backed by some type of collateral; say an automobile, home, gold, stocks, bonds, etc. They are usually for a longer time periods and larger principals than unsecured personal loans.

Secured personal loans are easier to obtain because the lender has less risk involved with the presence of collateral. Secured personal loans are the choice for those with a bad credit history, people who desire large loan amounts, and people who desire a longer repayment schedule.

Lenders will look primarily at your FICO credit score when determining your eligibility for a personal loan. A higher credit score will yield you lower interest rates on your loan. If you obtain a credit report from your local credit reporting agency and correct any errors on it as well as making sure that you are current on your bills, it will enhance your eligibility and save you money.

Unsecured personal loans are normally for smaller amounts and time periods than secured personal loans. They do not require collateral, and are therefore more heavily based on your credit score. They are normally for no more than $25,000 and for no more than 5 - 10 years. Some types of unsecured loans are: signature loans, revolving lines of credit, cash advances, and payday loans. Unsecured loans are commonly used for debt consolidation, vacations, unexpected expenses, home repairs, weddings and the like.

Because they require considerably less paperwork than other loan types, unsecured loans are readily available with little more information needed than your credit score, debt information, and proof of earnings.

Whether you opt to apply for a secured or unsecured personal loan, you need to thoroughly explore your options, get everything in writing, and not act hastily. Personal loans can be a great asset to help you through your financially challenging times.

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