Every so often in our lives, we need to take out a loan for one reason or another. Whether it is for a car, a hour or your business, at some point, life will most likely call for you to borrow a lump some of money. All loans were not created equal, however, and the one you need depends on multiple factors.
So, which loan is best for you? Here are four common loans for you to consider:
- Unsecured Loan. An unsecured loan simply means that it is not connected (or “secured) by any collateral like your house or car. These type of loans do have high interest rates because of this, though, and they tend to be most suitable for those with excellent credit. In fact, those with good standing credit are more likely to be approved than those with poor or limited credit as well as being more likely to receive better interest rates.
- When you might need it: Unsecured loans are typically also known as personal or signature loans and are useful when you are needing a student loan, credit cards, or just a personal loan. Whether or not an unsecured loan is best for you depends on your needs and current financial situation.
- What to look out for: The average interest rates of an unsecured loan are roughly in the 10-11% range, but can be as low as 5% (or lower) or as high as 20%, depending on the type. Despite the high interest rates, these tend to still be lower than credit card rates, on average. Unfortunately for the borrower, the interest rates of unsecured loans are not regulated by law, which is why they can vary so much.
- Secured Loan. Secured loans offer lower interest rates since you do use your assets as collateral toward the loan. Unlike an unsecured loan, the lender is relieved of financial risks involved in lending money in a secured loan. In addition to lower interest rates, secured loans usually also have higher loan amounts as well as longer repayment terms. This is arguably the best way to borrow a large sum of money.
- When you might need it: Secured loans are used when you are buying big purchase items like a home. They can also be a personal loan. However, in this case, the lender may hold the deed or title until the loan is paid in full. A mortgage or car loan are examples of secured loans.
- What to look out for: The downside is, of course, that is you fail to repay the loan, otherwise known as a default, you may lose your home or whatever assets you decide to place on as collateral, which can then also hurt your credit.
- Pawn Loans. Pawn loans, also known as pawnshop loans, are obtained through pawnshops and come in handy when you need cash fast for a short-term period of time. The main selling points of a pawn loan are the lack of credit checks and fast, almost instant cash. Like a secured loan, collateral is involved. However, the amount of your pawn loan is based on the total value of your pawned items, which is used as collateral.
- When you might need it: A pawn loan may come in handy if you need money quickly for a short amount of time. The typical time-frame of this type of loan is 30 days to two months. There is also often a one month grace period if you are unable to repay immediately, depending on the shop.
- What to look out for: If you are unable to pay on time, despite receiving a grace period if applicable, you may lose the merchandise you chose to put up as collateral. You are also usually not given the full resale value of the merchandise you provide; it may only be a percentage of the total resale value amount. There are a few other cons to pawn loans, such as high interest rates compared to the length of time you have the loan, and additional fees that may arise like storage and insurance fees. Pawn loans are not commonly recommended for all these reasons mentioned.
- GSIS Loans. GSIS stands for Government Service Insurance System and is a government owned and operated company of the Philippines. They provide social security benefits for government employees. These include but are not limited to: retirement benefits, death benefits, work-related disability benefits and life insurance. Members of the GSIS are able to take out loans like salary, home and emergency loans. That’s not all though; GSIS also provides what is known as the Enhanced Conso-Loan Program, which is designed to help those needing to lend funds but are unable to due to outstanding loans. Another similar to the GSIS is the Republic of the Philippines Social Security System (SSS), which is a social insurance program for employees in the Philippines that also provides loans to help members meet short-term credit needs.
- When you might need it: Anytime you may need a loan to fulfill a particular purchase or if you have a hard time obtaining a loan due to your current loan status.
- What to look out for: In order to be considered for a loan from GSIS or SSS, you must be a member. Furthermore, you do need to have made a certain amount of contributions and be a member for a certain amount of time (for some of the loans) in order to be considered eligible despite filling out an application.
So, what do you think? What is your current experience with borrowed funds? Which loan is best for you?
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