Many suggestions will pour into your mind from friends and family when you are experiencing a financial crunch. Out of all those suggestions, you might find applying for a personal loan a viable option. Many advantages attached to the personal loan like quick approval, easy processing and availability with many lenders make it a popular option for the borrowers who are experiencing financial crunch. The lesser known fact is that lenders offer both secured personal loan and unsecured personal loans. Making a choice between two entirely depends on your personal circumstances. Before you make choice, understand the pros and cons associated with each type of loan and make an informed decision.
Unsecured personal loan
These are the very popular type of cash loans available in the market. As the name suggests, these loans are not backed by any security. These loans can be availed easily if your credit report reflects positive meets the threshold of CIBIL rating. The lenders give due consideration to your repayment capacity as there is higher risk involved in disbursing these loans. The rate of interest on these loans is high as they are not backed by any type of security. In addition, unsecured personal loans may want you to disclose the purpose of the loan to get it approved. There is a cap on the amount of the loan that can be sanctioned through personal loans.
What Kind of Personal Loan Could Be a Better Choice?
Cons of unsecured loans
- Every unsecured personal loan is sanctioned by the lender with the agreement to repay it over a time. Pre-paying these unsecured loans draw a penalty. It is not easy for the borrower to ignore these prepayment charges as you are going to shed a percentage on the loan taken.
- The rate of interest is pretty high on these loans. It is very good if you can sharpen your bargaining skills and get the best with the help of your good credit score. You need to keep an eye on APR of the unsecured loans before availing them.
- The flat interest rate is another concern when you take a personal loan. Though a major chunk of the loan amount is paid, you will still be paying the same rate of interest throughout the tenure.
Secured personal loans
As the name suggests, these loans can be fetched by pledging a property with the lender. The interest rates on these loans are comparatively low. In the case of a secured personal loan, there is no need for you to disclose the purpose to the lender. You can prepay the loan anytime without worrying about prepayment penalty.
Cons of secured personal loans
- You should own a property apart from your good credit score to get a loan.
- There is a risk of losing the possession of the property if you default the loan.