Friday, 2 November 2018
Need some extra cash right away? There are two basic ways to borrow money: a secured loan, or an unsecured one.
Most of us are familiar with secured loans that require some “skin the game," such as a home or car loan, in which the lender can repossess the asset in case of non-payment. But an unsecured loan is granted on the probability you'll pay it back. As with a secured loan, you can expect a lender will scrutinize your income, credit history and credit score. An unsecured loan will also likely have a higher interest rate than with a secured loan.
For example, a $10,000 loan over five years at 15% will cost $4,273.96 in interest alone; that same loan for, say, a car at 5% would cost $1,322.74.
Jennifer Williams, a BBVA financial planner, says it pays to have a strategy in mind for borrowing money when you don't have cash on hand, and to have a full understanding of how much a loan is costing you. If you don't pay back the loan, you could risk wage garnishment or a lien on your assets.
One smart way to think about leveraging an unsecured loan is to use it for things that will return on the investment, Williams said. Here are five scenarios that could do that:
There are a lot of other kind of debts you might be tempted to fund with an unsecured loan, but Williams suggests finding alternate resources first:
Williams said that it always pays to be thorough in understanding what you're getting into when you take on new debt. “Figure out if you can afford it. Understand the interest rate, so it's not just the amount you're borrowing … do you really want to pay it? Is the benefit of whatever you're financing worth it?"
For more information on unsecured loans, contact us at 1-844-BBVA USA or locate a BBVA branch in your area.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
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