Choose Between A Secured Loan Or An Unsecured Payday Loan
Unsecured Payday Loans Have Different Rates Than Secured Loans
There are two types of short term loans: secured and unsecured. The former requires collateral from the borrower. The latter solely depends on the borrower’s creditworthiness and banking history. A significant difference between the two is what happens if there is a default. First, let’s discuss the differences between a secured and an unsecured payday loan. After the initial evaluation, you can decide which works best for you.
Is a payday loan secured or unsecured?
A secured loan is backed by an asset like a vehicle pink slip or house. It can also be from items you pawn or put up as collateral. Examples include electronics, jewelry, or anything of financial value. This item will act as collateral for the installment loan. It gives the lender the right to repossess the collateral if you fail to repay the loan. Most companies will sell the repossessed property to pay off the loan, but if the proceeds from the sale are not enough to cover the loan entirely, you will still be responsible for paying the difference.
Examples of a Secured Personal Loan:
- Car title loan
- Home Mortgage
- Loans by pawn shops
- Home Equity Credit
How To Qualify For A Secured Payday Loan
Repossession of a vehicle is time-consuming and most lenders don’t want to track down secured assets. One can never be certain of the condition of the collateral.
This is why companies want to be certain of the credit history and income of a borrower before issuing a secured loan. The loan limit is higher in some cases as well as they know they’re not dealing with someone looking for a bad credit payday loan. Collateral for a secured personal loan is often a high-value item. Think about a car or house, borrowers can get a larger sum of money. You may also see the monthly repayment schedule is longer. A direct secured loan tends to have a longer repayment schedule. It’s difficult to track down what type of payment structure works.
Typically, a car loan lasts for 5 years, and we all know the popular 30-year mortgage home loan. Do you know the Pros & Cons of working with an unsecured lender?
Pros of A Secured Loan:
- Long repayment schedule
- Low interest rate
- Can improve your credit score when payments are on-time
- Borrowers can lose the collateral (car or home) on failure to pay back the loan
- Credit score will be negatively affected by failure to pay back the loan balance
An unsecured payday loan does not require the borrower to mortgage their assets. Online payday loans, tribal loans, and cash advances are examples of unsecured loans. In this case, the direct lender cannot take any of your assets if you fail to pay back your loan. Typically, you must have a solid income and good credit history to qualify for an unsecured online loan. The amount you borrow is smaller compared to a secured loan and the underwriter will verify bank and personal information. There is no collateral if you happen to default on monthly payments.
Examples of an Unsecured Loan:
- Payday loan
- Payday advance
- Personal loan
- Cash advances
- Credit card
Here are some of the most common features that come with unsecured payday loans. In most cases, the amount you borrow will be a small amount. Except for student loans, unsecured payday loans are smaller in amount. Compare the rates and terms for a payday loan with no credit check to secured loans and you will see the interest rate charged on balances due is generally higher. Interest rates and the APR will be high when you borrow from a direct payday loan lender. The rate of interest on unsecured loans is higher.
The interest rate on credit cards on average is 15 to 18%. With payday loans, the rates can be over 100%. It’s best to compare the pros and cons of direct lender payday loans to get a better idea.
Pros of An Unsecured Online Payday loan:
- They are easy to get and convenient. You can make payments and buy things when short on money
- Unsecured payday loans can improve credit scores if paid each month on time. You can eventually qualify for secured loans with a lower interest rate
- With a higher interest rate, you are paying more for the goods and services compared to their actual price
- Credit score will be negatively affected if you miss payments on direct lender payday loans
Which is better when it comes to working with a direct lender? A loan that is secured by some type of collateral? Or an unsecured advance like a payday loan or credit card advance? In most cases, the borrowing limit is higher, the interest rate lesser and the repayment period shorter. It pays to do research on the companies you work with. Find out if your lender has a state license.
Payday Loans Secured Or Unsecured – What’s Best
Check out our Payday Loan State Lending Regulations to see current requirements in your state. Even online lenders find secured loans more favorable than unsecured loans. Most can repossess the collateral in the event of a non-payment. There is an assurance for the lender to get money back even if the borrower does not pay back the full amount.
Many states will allow a title loan company to repossess a vehicle or take back an item that’s backed by collateral. In California, a car title loan lender can often take possession of your vehicle if you miss a payment. Of note, many of the laws regarding repossessions in California and all 50 states that matter are on hold or have been changed because of the ongoing COVID-19 emergency. The law gives the borrower a certain amount of time before the company can sell the car. But the clock will start ticking the moment the first payment is missed. Because of that, you need to make the right choice when deciding on secured payday loans or unsecured loans.