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Secured And Unsecured Loans Explained

If you find yourself in a tough financial situation or are simply in need of some extra disposable income to make a purchase, you may consider taking out a personal loan. Of course not all loans are the same. Depending on the lender you could be offered different amounts, interest rates, and repayment terms.

Generally speaking however there are two main categories of personal loan - secured and unsecured. It's essential to understand the difference else you may end up in even deeper financial trouble.

What Is A Secured Loan?

Simply put a secured loan is a loan that requires collateral. This means you need to put up something of value that the lender can claim if you fail to make the repayment, allowing them to still recoup most of their money when they sell it on. Common collateral can be your home, cars or other vehicles, land, expensive jewellery etc.

Because this type of loan is "secure" the lender will often be more lenient, allowing for a larger principal, betters rates and fees, and a longer repayment period.

The most common form of secured loan is a property mortgage, though they might also apply to boats & yachts, cars and other larger purchases.

Anything over $10,000 is likely going to require some collateral.

If you fail to make repayments and do not enter a productive dialogue with the lender, you will default and then the process of acquiring the collateral will commence. This will also negatively impact your credit score, making it harder to obtain credit in the future.

Learn more about secured loans here - https://en.wikipedia.org/wiki/Secured_loan

What Is An Unsecured Loan?

An unsecured loan is therefore a loan that does not require any collateral. From the borrower's perspective this can be a safer option, as if they get in to trouble they won't directly lose anything of value or importance like their home. However from the lender's perspective this will be more risky, so they will often only loan smaller amounts and only deal with those with a good credit history.

You might use an unsecured loan to pay for a holiday, used a car, home repairs, or smaller purchases. You are unlikely to be offered more than $10,000 unless you earn a good amount and have a good credit score.

How To Qualify For An Unsecured Loan?

There are only a few basic requirements to qualify for an unsecured loan, though if you already have several credit cards, loans and other forms of credit, you may be turned down regardless of whether you meet them.

You will need to be at least 18 years old, as loans cannot be given to minors. You will also need a regular income of at least $750 per month so you can demonstrate your ability to make repayments under normal circumstances.

Your credit history is usually taken under account when applying with a bank or large lender. So if you have defaults and other black marks, chances are you will be rejected. Some lenders however may not check, especially if you're applying for a small payday loan. Learn more about unsecured loans here - http://www.investopedia.com/terms/u/unsecuredloan.asp

REPAYMENT

Regardless of the type of loan you take out you will be required to make repayments on a regular basis. The only exception is payday loans, where you make the whole repayment in one lump sum often before a month has even passed. This is because they are supposed to be used to tie you over until your next "pay day".

Most other loans are longer term commitments though you will usually have the ability to pay them off early. This may require you to pay extra fees.

Loans also require you to pay a rate of interest on top of the principal, which is usually calculated as an Annual Percentage Rate (APR). This is a percentage of the principal calculated yearly. For example if you borrowed $4,000 at a APR of 20%, by the end of the year you will have paid $800 in interest on a monthly basis.

If you fail to make repayments on your loans and "default" the lender will first attempt to work out a repayment plan with you, but if this does not work out they will begin collection proceedings and may take certain civil action. If you put up collateral this can then be taken, otherwise you may be stuck with paying off interest for a considerable time.

Note To Consumer: If you are currently struggling with debt you are advised to obtain expert financial guidance. Taking out a short-term loan will not solve your long term debt problems. Short-term loans are governed by local laws and regulations, which borrowers are encouraged to review before proceeding.

APR Disclosure: The Annual Percentage Rate (APR) is the interest rate charged by the lender, based on the amount loaned, cost and duration of the loan, number of repayments, and timing of repayments. This rate and other terms will be presented to you in a loan agreement prior to signing the contract, as per federal law. The maximum APR that lenders can charge for loans varies from state to state. On average the rate will fall between 200% and 1386% for cash advance loans, and 6.63% to 225% for installment loans. Some states have no regulations regarding APRs and therefore the lender can charge any rate they desire. A lender reserves the right to change their APR at any time, within state regulations.

Material Disclosure: The operator of this website does not provide loans themselves, nor do they act as a broker or agent for any other loan broker or lender. Rather they function as a referral service, advertising loan products from a network of qualified lenders. These lenders commonly offer cash advance loans of amounts between $100 and $1,000, and installment loans of up to $5,000. The amounts offered are subject to change and there is no guarantee that you will be matched with one of these lenders or approved for a loan. Our service and the lenders in our network do not offer or solicit for loans that are illegal under any state laws and regulations. Our service does not constitute a solicitation for any particular loan and we are not offering to lend to you ourselves. Our service is entirely free and we do not endorse any particular loan product or service. Lenders may compensate us for advertising their loan products only. This service and offer is void where prohibited. As an advertising and referral service, we are not responsible for the actions, terms and policies of the lenders in the network and have no control over their assessment of applications and loan terms offered. We do not have any access or control over your loan's interest rates, fees, repayments, non-payment repercussions, or other terms. Therefore you are advised to contact the individual lender if you have any queries regarding your loan. By using our loan request form you agree that your personal information will be shared with one or more lenders from our network. You are under no obligation to use our service, nor complete a loan application or accept a loan from any lender contacted through the service. The time it takes to receive your loan after signing an agreement may vary from lender to lender. The terms of repayment may be subject to local laws and regulations. You may be required to fax documentation as part of the lender application process. To learn more about our service and the loan products offered by lenders in the network, you are advised to read our FAQs. These pages do not constitute legal advice. By using our service you are subject to the site's Terms of Use and Privacy Policy.

Exclusions: Due to state laws and regulations residents of West Virginia, Arkansas, Vermont and New York are not permitted to use our service or website. Furthermore not all short-term and small-dollar loans are legally available in all states. We reserve the right to change the states serviced by this website without notice.

Credit Implications: No credit decisions are carried out by our service or website. Credit checks may be carried out by an independent lender from our network if you have been matched with them, which may include reports from credit bureaus or alternative providers. This may be used to assess your current credit standing or capacity, and overall credit worthiness as deemed by the lender. By submitting your information via our loan request form you accept that such checks will take place and agree to allow lenders to verify your personal details. Taking out a short-term loan will not solve your long term debt problems, and all loans provided by the lenders in our network are intended to be repaid over a short period of time. It is wise to obtain professional guidance regarding your current financial situation, and the risks involved with short-term loans. If you cannot realistically repay the loan at the time of your next pay period, then you should seek a smaller amount or not use this service. Missing payments or failing to repay loans at all, may result in added fees and interest, and collection proceedings by the lender to try and recover the debt. Policies regarding loan renewals and collections vary from lender to lender, so make sure to read their full terms before committing to a loan.