Choose Between A Secured Loan Or An Unsecured Payday Loan
Unsecured Payday Loans Versus Secured Payday 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.
Is a payday loan unsecured or secured?
Secured loans are backed by a high dollar asset, often a house or vehicle. 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.
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 a borrower’s credit history and income before issuing a secured loan. Sometimes, the loan limit is higher because 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. Consider a car or house, where you can sometimes borrow $5,000 or more with the equity. You may also see the monthly repayment schedule is longer. A direct secured loan tends to have a longer repayment schedule. It isn’t easy to track down what type of payment structure works.
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. The amount you borrow is smaller than 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
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. With payday loans, the rates can be over 100%. To get a better idea, it’s best to compare the pros and cons of direct lender payday loans.
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 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 research 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.