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Tags: finance, personal loans, different types of personal loans
 Have you ever had the need to take out a personal loan for something you needed to pay for? I’m sure you have. I know I have. When I bought my first car I had to get the financing for it since I couldn’t afford to pay for it upfront.
I was still in college then and even the price of that small subcompact seemed like a million dollars. Years later when I bought my first home I took out a mortgage for it. Sounds familiar right? Of course it is, after all you may have gotten it at one time or another.
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If you have you have just gotten a personal loan. The type I was just talking about—the car financing and the home mortgage—they both are an example of what is called the secured personal loan. What does secured mean you ask? When a personal loan is secured it means that it is protected by an asset or collateral.
Typically, as in my case, the items I purchased became the loan collateral. My bank, which was the financial institution who lent me the money, placed a lien on those two items. They held the ownership of said items until I paid off what I owed them. If I had defaulted on my personal loan, my bank would then re-posses or take ownership of either my car or my home in order to pay off the remainder of what I owed them.
If there was anything left over after they had taken their share, it would be given to me. It is scary to know that even though you bought the house you don’t exactly own it yet, but at the same time if it weren’t for this type of lending I wouldn’t have been able to afford either car or home.
The good thing is if you’re looking for a second mortgage or to refinance you can use the same collateral that you used before. In fact it can be advantageous if you’ve built up equity or ownership in your home. This is because you can then get another type of personal loan called a line of credit, or in this case an equity line of credit.
This is the maximum amount of money a bank will lend you based upon your collateral and credit worthiness. While similar to the secured personal loan in that collateral is required, it differs because you don’t get the money upfront. You, as the borrower, take out the money you need from the total amount at your disposal.
So if you had $100,000 at your disposal and only took out $25,000, then you owe only that amount. You simply repay that amount according to the terms of your agreement before you can take out more money. Just know that interest charged will vary depending on the market rate at the time you took out the money.
So your 1st amount may have a different interest rate than your 2nd and even 3rd ones. If you’re not interested in risking your home as collateral then getting an unsecured personal loan may be what the doctor ordered. As its name implies, no collateral is necessary in order to avail of it.
Basically, you’re promising to pay back the amount you borrowed within the agreement upon your signature. Your credit card is the best example of this type of lending. When you use your card you’re basically borrowing the money to pay for your purchases and agreeing to abide by the terms of the credit card provider.
Since no collateral is given, penalties accrue and even collections and legal actions taken should you default on your payments. These different types of personal loans are available for you should you find yourself in need of financial help. Depending on your circumstances either of the three types may be good for you.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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