Loan Articles

When I was unexpectedly laid off from the door company where I’d been working for four years because the home construction business had dropped off so drastically, the state unemployment system was already so backed up that it took me six weeks to start getting checks. Living off credit cards and using one to pay another is a scary way to live, and believe me, I was waiting every day for something to happen which would make that admittedly bad financial plan stop working. Fortunately, I discovered there are other ways of dealing with a short-term total lack of income.

Depending on what one has to back it up with, there are a variety of personal loans that can get a person through a rough patch. This could be a sudden lay-off, an unexpected medical expense, the magnesium in your VW’s engine causing a catastrophic meltdown in your driveway leading to catastrophic repair expenses… The point is, stuff happens, and a personal loan may be a much better option than wracking up more credit card debt.

There are many types of consumer loans, but the two basic types of personal loans – which differ from, say, home improvement loans in that the borrower is not specifying what the money is to be used for -- are secured and unsecured.

A secured loan is what it sounds like, one where the borrower has some sort of collateral of equal or greater value with which to back the loan, such as a house or boat, and which will be forfeit if the loan is defaulted on. Due to this, the loan has a much lower degree of risk for the lender, and thus usually will have a lower interest rate than an unsecured loan.

An unsecured loan is also what it sounds like. This loan is not backed by a security from the lendee and therefore poses more risk for the lender. As a result, interest rates are higher and the repayment time is generally shorter. It is also more difficult to get this type of loan, especially in today’s economy.

It is also true that many of us would not necessarily be in need of personal loans if we had the finances and good credit we’d like. The poorer one’s credit rating, the more difficult it will be to get any type of loan. Difficulty does not necessarily equal impossible, but at the same time, the terms of any loan should be looked into carefully to make certain that the risk doesn’t outweigh the benefits.