There are many different types of personal loans Hampden County residents can take advantage of when making financial decisions. Broadly speaking, each form of lending can be considered an unsecured loan or a secured loan, and understanding this distinction can allow you to quickly assess and respond to different financial offerings.
What Is a Personal Secured Loan?
A secured loan is a type of loan in which you have used something valuable that you own as a form of collateral. This is often seen in an auto loan, mortgage, or home equity line of credit (HELOC), where the car or property becomes the collateral that gets used. In the event that you fail to repay the loan, the lender has the right to take the collateral and sell it in order to regain its money. The use of collateral helps reduce the risk that lenders take in offering a personal loan, which means that you can usually get higher borrowing limits as a result. Rates of interest for a secured loan can be variable or fixed depending on the nature of the specific financial product, and they can also have a fixed or open-ended term.
What Is an Unsecured Loan?
As the name implies, an unsecured loan is different than a secured loan by the fact that no collateral is used. This places the lender at much higher risk since it has limited ways of recouping the loss if you fail to repay. Due to this, unsecured loans typically have lower borrowing limits and higher interest rates. Unsecured loans also commonly feature fixed terms and fixed interest rates, which keeps payments consistent month-to-month but also places a firm deadline on repayment. The advantage to using an unsecured loan is that the lack of collateral cuts down on the amount of paperwork and processing time it takes to secure the desired funds.
Is a Secured or Unsecured Loan Best for You?
The answer to the question of which loan type is best for your needs depends on your personal situation, since each loan type has its own set of pros and cons, just like any form of debt. Secured loans have lower interest rates but put your assets on the line as collateral. Unsecured loans are risk free for you, but they also come with higher interest rates and can be hard to qualify for without a good credit score. Figuring out which loan option is best can be narrowed down by answering the following questions:
Do You Have Good Credit?
Without a good credit score, obtaining an unsecured loan may not be possible, or, if such a loan can be found, your interest rate would be significantly higher.
What Kind of Interest Can You Afford?
Take an honest look at your finances and try to map out the types of interest rates you can manage to repay. As much as you may prefer to not put your own assets at risk, it may be necessary to take a secured loan in order to make repayment more manageable.
Do You Have Any Collateral to Offer?
Being able to receive a secured loan depends on your ability to offer collateral. If you don’t have anything valuable enough to serve as collateral to a lender, then you may find yourself with only an unsecured loan as an option.
A Local Source for Personal Loans
LUSO Federal Credit Union is a member-owned, not-for-profit financial cooperative dedicated to providing our members with quality financial services and products. We at LUSO pride ourselves on serving the financial needs our members and can provide personal loans in Ludlow, Springfield, Westfield, and Hampden County, Massachusetts.
Feel free to contact our Ludlow branch toll free at 1-844-LUSO-FCU or our Wilbraham branch at 1-800-808-5876.