Loans can help your dreams come true or they can turn nightmares into reality. It all depends on the type of loan you get. Still, Canadian household debt now represents 177% of disposable income.
Unfortunately, this shows a frightening trend of rising debts, interest rates, and more. Luckily, you can set yourself up for a beneficial loan term if you know what to look for. Let’s talk about the benefits of securing an unsecured short-term loan and how King Cash can help you!
What Is an Unsecured Loan?
Most cash loans and short-term loans are unsecured. Essentially, an unsecured loan is a loan with no collateral. This leaves lenders with few options to collect on their payments beyond impacting your credit score.
Most credit cards and short-term loans fall under this category. Essentially, you’re borrowing free money with the promise of paying it back (or making payments) on a fixed term. However, there is nothing to reinforce this loan as there would be with a mortgage or other secured loan.
Consequently, unsecured loans tend to be smaller and have higher interest rates to make up for the added risk on the lender’s side.
What Is a Secured Loan?
A secured loan is a loan that has collateral. We mentioned mortgages as a prime example, but there are plenty of others, including auto loans, HELOCs, and secured credit cards.
In a mortgage or HELOC, the collateral is your home. For an auto loan, the collateral is your car. Essentially, if you don’t pay back the loan, the lender will repossess this collateral, which offers the lender much greater security when lending to risky borrowers.
The way that a secured credit card or short-term loan works is that you offer some type of collateral upfront when taking out the loan. In the context of a credit card, this could be cold hard cash, which means you’re essentially borrowing from yourself. In the context of a short-term personal loan or payday loan, it could be a physical asset like your car or your home, depending on the size of the loan.
The Benefits of Securing a Short-Term Loan
Securing a short-term loan can help you get a better loan, or even help you find a loan in the first place. Here are some of the key benefits of securing an unsecured loan.
Higher Acceptance Rate
First, if you have a lower credit score or no credit at all, you may struggle to find a loan. Offering the lender a greater level of security makes you more likely to get accepted for a loan that you need.
If you’re worried about acceptance, find out what type of credit check you’ll need to undergo before applying, and consider adding collateral to your application. There are no credit check loans out there, but most will require collateral, so keep that in mind while you shop around!
Lower Interest Rates
Again, securing your loan will lead to lower interest rates, which directly saves you money. Unsecured short-term loans have notoriously high interest rates, so avoid setting yourself up for failure at all costs.
Moreover, this is especially important with today’s interest rates. Some unsecured short-term loans can go into triple-digit rates, which means you’ll need to pay back more than double what you borrowed if you don’t pay it back on time.
Fewer Risks of “Debt Traps”
While this isn’t the lender’s intention, high interest rates can lead to so-called “debt traps”. This is when someone borrows money, struggles to pay it back, and only ends up in more and more debt over time as a result.
Fortunately, with a secure loan, you won’t have to worry about falling into this pattern. As long as you can make payments when they’re due, you won’t have to worry about outrageous interest rates compounding over time.
Higher Loan Limit
Since secure loans are less risky to the lender, you can likely receive a higher loan limit, or even multiple cash loans to help you reach your goals. This can offer several different benefits, as you can receive more cash for what you need, keep your credit utilization low, and have extra funds on hand for emergencies.
Consequently, if you take out more than you need, it will be a lot easier to make payments as needed. This will offer greater peace of mind when the first bill comes due!
Having a higher credit limit and more open lines of credit in good standing directly improves your credit score. If this is a revolving line of credit (like a credit card), a higher limit will mean lower credit utilization, which accounts for 30% of your credit score.
Also, if you have a new installment loan (car loan, payday loan, etc.), this can immediately help improve your credit. The more open credit lines you have in good standing, the better. Securing your loan will make it a lot easier to maintain with lower rates and more manageable debts.
Secure Your Short-Term Loan Today
Now that you know the benefits of securing a short-term loan, you can see why it’s so beneficial. It can help you save money, avoid debt traps, and increase your credit score. If you need cash fast, then securing a short-term loan is a great option for everyone’s security and peace of mind.
Stay up to date with our latest financial tips, and check out KingCash.ca fast loans in Canada to secure a loan that’s right for you!