Times have never been so trying before the pandemic COVID – 19 took over the world. Thanks to this contagious disease, financial uncertainty is the one factor that is eating away at the mental peace of many, if not all!
Thankfully, there are solutions to this predicament as well. One can always apply for a loan from a bank.
But what about the ones who are already under a considerable amount of debt and to add to their woes, have a poor credit score?
Well, they can also apply for a no credit check loan from non – traditional lenders.
Why?
Well, due to the following reasons:
- Non – traditional lenders don’t care if you have a poor credit score
- Their paperwork is simple
- Their processing time is short
- They offer tons of repayment options to the borrower, etc.
One might be feeling excited about taking a no credit check loan but there’s a bit of information that one needs to get familiar with before they start typing, ‘loans no credit near me’ in their Smartphone!
As mentioned in the sections above, there are tons of options laid out in front of a borrower looking for a no credit check loan from a non-traditional lender.
Primarily, those ‘options’ are broadly categorised as secured and unsecured loans.
So, what is the difference between the two and which one would be the right choice for you!?
Eager to know the answer!?
Here we go:
What is a secured loan?
These loans are approved by the lender when the borrower submits anything of high value that they own such as their car or their home as collateral to the lender.
How does it work?
The lender won’t take possession of the collateral as long as the debt instalments are paid on time by the borrower. As soon as the debt is paid in full, the borrower can take possession of the collateral.
What if you fail to repay?
Defaulters pay the price by losing the ownership of the collateral to the lender.
What is an unsecured loan?
It is a loan approved by the lender where no collateral is asked from the borrower. The loan is approved based on the word of the borrower.
How does it work?
You agree to the repayment terms laid out by the lender. After this, a term period is set as well as the interest rate.
Since you are not asked to submit anything as collateral to the lender, lenders consider these are high-risk cases. There is a certain drawback to this – compared to secured loans, unsecured loans allow a limited amount to the borrower as credit.
What if you fail to repay?
Your credit score will be negatively affected and your account will be handed over to collections. Furthermore, legal action will be taken against you!
So which one is right for you?
Well, it all depends on:
- Your overall ability to repay
- Whether or not you are financially disciplined individual
- Whether you or not you are repaying your debt instalments within or before the deadline
- The amount you have borrowed
- The tenure of the loan
One should keep this in mind that before making any decision regarding applying for a loan, they should pay attention to their overall ability to repay the debt. In this way, they can make an informed borrowing decision.