Two types of personal loans
Personal loans come in different shapes and sizes. On a basic level, there are two varieties: secured and unsecured. Secured loans require some sort of collateral. People who want to borrow a lot of money will often use their house as collateral, while those who need less money might use a car or jewelry or some other valuable possession.
The obvious problem with this is that you could potentially lose your car or valuables if you default on the payments. On the other hand, the advantage is that interest rates are generally lower if the loan is secured instead of unsecured.
Unsecured loans do not require collateral. You still may be able to get a low interest rate if you have a stellar credit history, but for most borrowers, the interest rate will be higher for an unsecured loan than for one that is backed by collateral.
Why unsecured loans are a good option
If you have a poor credit history, and you need money quickly, unsecured loans may be the best option. Instead of handing over something valuable as collateral, you can prove that you will have the money to pay off the loan by showing a recent paycheck and your bank statement.
The advantage of online personal loans is that the money is often available to you very quickly. The approval process could take a matter of hours instead of the days or weeks needed for a larger, secured loan.
Flexibility and convenience
There is another advantage of opting for an online personal loan. Traditional lenders such as banks may require that you use the borrowed money for specific purposes. With loans where you use your paycheck as collateral, there are no such requirements. This makes such an option ideal for basic expenses like paying monthly bills and buying food at the supermarket.
Also, opting for a major secured loan might be overkill for your needs. If you only need help with necessities for a week or two until you get paid from work, then applying for a large loan would be totally unnecessary. This is why so many people opt for basic unsecured loans on the internet.
So, an online personal loan is ideal not only for people with poor credit, but also for those who simply want a convenient, unsecured loan to help them with basic expenses until their next paycheck arrives.