Unawareness of the types of personal loans might result in careless borrowing practices.
Worse yet, it can cause you to become fearful of ever discovering your opportunities and presenting alternatives.
Big loan amounts, cheap interest rates, and extended repayment schedules can convince virtually anyone to sign a contract without carefully reading the fine print or conducting the necessary research.
If nothing else, you ought to be aware of the various kinds of personal loans.
We have both secured and unsecured loans here in the Philippines.
What distinguishes them? What are the benefits and drawbacks associated with each?
Love, we’ll address those queries shortly, but first, let’s go over the fundamentals: What are personal loans?
What are Personal Loans?
To put it briefly, a personal loan is a loan obtained from a bank, credit union, or internet lender.
The loan can be repaid in monthly installments, typically with a set interest rate.
Lender to lender will have different maximum loan amounts, so be sure to prepare a few things before applying.
After we’ve cleared things up, you’re undoubtedly eager to learn more about the two different kinds of loans. Remain calm.
This small item known as “collateral” in the banking industry is crucial to comprehending the distinctions between secured and unsecured loans. In essence, it is what makes them different from one another.
So let’s take a little diversion to better comprehend the two categories of personal loans.
What is a Collateral?
An asset that you can pledge as security for a loan is known as collateral.
It serves as a sort of guarantee to the lender that you have the resources to repay the loan.
The collateral may be taken ownership of by the lender in the event that you are unable to repay the loan.
However, not all items are suitable for use as collateral.
The following are some examples of frequently used asset types:
- Real estate
- Vehicles
- Equipment
- Money
- Inventory
- Invoices, or future payments
Learning about the two types of personal loans available in the Philippines will be much simpler now that you have a better understanding of collateral.
What Is The Difference Between Secured and Unsecured Loans
First, let’s talk about secured loans. Loans classified as secured demand collateral as collateral.
Hence, they are occasionally referred to as “collateral” loans.
While there’s no assurance that you’ll be able to obtain the loan amount you desire, these loans are typically simpler to obtain because collateral has already been “secured.”
Unsecured loans are distinct from secured loans in that collateral is not required in order to borrow money, as you may have already surmised.
Online lenders are offering the highest interest rate on this loan.
You might be asking yourself, “Is that it? ” after reading these definitions of secured and unsecured loans. Alright. Then I’m prepared to borrow!”
Hold those proverbial horses once more, my dear. Bring them under control.
Consider the benefits and drawbacks of each option below before making your choice.
Secured Loans: The Pros and Cons
Pros
Higher Loans Amount
You can access larger loan amounts since secured loans require you to pledge collateral, which gives lenders more confidence that you can repay them.
Lower interest rates
Your collateral entitles you to lower interest rates for the same reason that the larger loan amounts do.
Longer Installment Terms
You can extend the repayment period for secured loans. This implies that you can spread out the loan amount over a number of months or even years, which will ease the monthly payment strain.
No need for an excellent Credit Score
Once more, collateral is the only explanation. Even though you’ve already demonstrated your ability to repay the loan, lenders will still review your credit score, so it’s not the final word.
Cons
More interest in long-term payments
While it can seem simple to extend your payback period for several months or years, consider the monthly interest that would accrue. Before deciding on your installment terms in full, make sure you consider that.
Could affect your credit score
This can be a significant commitment because of the large loan amounts and lengthy repayment schedules. Only apply for secured loans if you are confident in your ability to repay them.
Lenders could seize your collateral
If you don’t pay back the loan, not only might your credit score suffer, but the lender might even take your collateral as payment.
Unsecured Loans: The Pros and Cons
Pros
Fast and simple application process
When opposed to secured loans, the entire application process—including disbursement—is typically quicker and easier to understand.
You may easily and quickly get accepted through your Tonik App, just like with our Quick Loan.
Can be used for multiple purposes
While some secured loans are flexible, most aren’t available for use outside of certain categories, including buying a house or car.
However, the majority of unsecured loans can be utilized for a wide range of purposes, including paying for emergencies or making company investments.
No need to worry about collateral
You won’t have to worry about anything being taken by the lender because you won’t need to pledge security in order to obtain an unsecured loan!
Cons
Strict eligibility criteria
Less work is involved in applying for an unsecured loan than for a secured loan, but this does not guarantee that the lender will accept every application.
They establish eligibility standards based on a variety of factors, including citizenship, work status, and age.
For our Salary Loan, for instance, you must be a working Filipino citizen between the ages of 21 and 58.
Higher interest rates and lower loan amounts
Do you recall that secured loans had bigger loan amounts and cheaper interest rates due to collateral?
That’s not the case for unsecured loans, though. Lenders will take a greater risk when you borrow money without committing collateral, which will result in higher interest rates and smaller loan amounts!
Choose the Perfect Personal Loan for Your Needs in the Philippines!
Discover the perfect personal loan tailored to your needs!
Whether you’re looking for a hassle-free salary loan or a flexible personal loan, we’ve got you covered.
Take charge of your financial goals today and explore our loan products in the Philippines.
Apply now and turn your dreams into reality!
Resources
Academy, Coins. “Common Types of Loans in the Philippines | Coins.ph Academy.” Coins Academy | Coins.ph, 7 Apr. 2024, coins.ph/academy/common-types-of-loans-in-the-philippines.Zoleta, Venus. “Need a Financial Boost? Check Out These 19 Low-Interest Personal Loans.” Venus Zoleta, 4 Jan. 2024, www.moneymax.ph/personal-loan/articles/personal-loan-low-interest.
