Ara Betty is a freelance financial writer and speaker about personal financing. She helps people realize their goals on becoming debt free with the use of debt consolidation. She hopes to expand her knowledge more about loans and debt to be able to write a book.
Unsecured Loans, Signature Loans, and Much More
When it comes to the world of loans, there are so many terms and names for everything. Sometimes, two different names could actually be the same thing! It is important to know what every term means when you are choosing a loan.
This will help make sure that you are getting exactly the loan that you need, the terms that you want, with the amount that you can afford to pay back. To help you learn what all of the terms mean and get the best loan possible, here is a quick rundown of some terms that you will come across.
Secured and Unsecured Loans
You’ll definitely see these terms because every loan will be either one of these. To make it short and sweet, secured and unsecured loans refer to the collateral that is involved in the loan. If you are planning on getting a secured loan, then you should expect that you will have to put down collateral, such as your car in order to get the loan.
If you fail to pay off the loan, the lender will have the right to take your car. This may seem a bit risky. However if you manage to pay it off you can save a lot because there is usually a lower interest rate. But people who don’t own property (people who rent cars and apartments for example) may not be able to qualify for a secured loan.
Unsecured bad credit loans, on the other hand do not require the borrower to put down any collateral when they are applying. Normally, this is a more risky option for the lender since they could be placing themselves in a position where they could potentially lose money, which is why finding secured loans is normally easier.
Therefore, they make up for it by charging higher interest rates. An unsecured personal loan is good for people with bad credit or who cannot put down collateral. However, you have to make sure that you will be able to pay back the lender to avoid debt.
You may have heard of “good faith” or “good character” loans before. They are actually signature loans. It gets the name signature loans because when you sign the loan documents, you are promising the lender that you’ll pay them back based on your signature. It does not require any collateral, hence why it is considered an unsecured loan.
As you can imagine, there is a certain amount of risk the lender has to undertake, but it is a quick loan to get even if you have poor credit. You can borrow as much as $50,000, however since the lender does not get financial security from you, it will usually be in smaller amounts, ranging from anywhere between $500 and up to $5,000.
A Payday Loan
A payday loan is another common type of loan that you can easily find and it often goes by the name cash advance. It is a personal loan that is normally a short-term loan. A payday loan is also an unsecured loan so you have to watch out for any high interest rate if you decide to apply for one. This is a good choice to get quick cash.
It is similar to a signature loan because the process is very quick, therefore it is a great option if you have to deal with an emergency. These types of loans are known for their fast approval and loan disbursement on the same business day that you apply for them. However, also like a signature loan, the amount that you can borrow will not be that big.
A payday loan is a short-term loan and many lenders will want you to repay them within a month or so. So you should stick to the amount that you need and not borrow too much, especially since higher interest rates will apply because the loan is unsecured.
However, the overall ease of the loan process for a payday loan is amazing. There are many websites that you can apply for a payday loan. The application forms are usually very simple and fast to fill out.
If you are aiming for a payday loan, you can expect to hear about your approval within the same day, and sometimes even minutes after you sent in your application. You will get the money in the same day as well.
Just remember that you have to wait a few hours before you can withdraw it from your bank account. You are free to do whatever you want with the money.
Obviously, an auto loan refers to a loan that you would get for a car. These loans are usually long-term loans, so you should not get a payday loan or a signature loan to get a car.
A car is a big expense and a short-term loan only gives you a certain amount of money that must be paid back right away, so you will have to find a loan specifically for cars. It might not always be easy to get a car loan depending on what your credit score is.
Thankfully, there are many options nowadays that allow people with bad credit to get a car.
Direct and Indirect Financing
Direct financing is where you will be speaking to the lender and you will be the one to find, apply, and negotiate the terms with the lender. This can be a good option because you get to handle the terms face-to-face and there won’t be any confusion on both ends.
Indirect financing, on the other hand, requires a third party who will find you the lender and get you the loan, which can be easier but can also cause potential confusion. If you go to a car dealership and ask one of the dealers for a loan, that is a form of indirect financing.
If you want to learn even more about the terms used in lending/borrowing and about loans in general, fill out the form or email us. You will find the loan that you need right away.