If you are looking to take out personal loans, then you will need to know which kind you want. There are two different kinds; secured personal loans and non-secured personal loans. There are many differences between the two kinds of personal loans, and this article will explain those differences to you.

Unsecured Loans Don’t Require Ownership of Homes, Stocks or Autos

If you are looking to take out personal loans, then you will need to know which kind you want. There are two different kinds; secured personal loans and non-secured personal loans. There are many differences between the two kinds of personal loans, and this article will explain those differences to you.

The most important thing that separates a non-secured personal loan from a secured personal loan is ownership stakes in assets. With a non-secured personal loan, no assets will be used as collateral. A borrower must have enough income to pay back the loan without fear of defaulting on it. Otherwise, they would risk losing their job or going bankrupt if they couldn’t keep up with payments for whatever reason. This can be a scary prospect for anyone.

With a secured personal loan, the borrower will be able to use an asset that they own as collateral on the loan. For example, if you were looking for a personal loan of $5,000 and didn’t have any assets to put up as collateral, then you would not be approved by the lender unless your credit was perfect or close to it. However, if you had $20,000 in equity in your home (meaning that the value of your home is worth more than what you still owe on it), then this could replace the collateral aspect of personal loans. This means that instead of putting up personal assets for collateral with non-secured personal loans, borrowers can use their assets’ equity as collateral with personal loans.

Making Payments on Non-Secured Loans

Another difference between personal loans is the way that payments are made and how much each payment will be. Personal loan interest rates can vary from lender to lender, but it generally averages out to somewhere around 7 percent on non-secured personal loans. Lenders won’t charge any additional fees or hidden charges when borrowers make personal loan payments with non-secured personal loans.

With a personal loan, however, there might be preloaded fees and higher rates of interest than the average non-secured personal loan rate. Some lenders may charge late fees if you miss a payment and others may charge more than one fee per month even if your payment is only a few days past due.