Comparing Tenant Loans to Personal Loans

Tenant and personal loans serve particular types of borrowers and offer several advantages. In general, the tenant loan requires no collateral but comes with a higher cost. The personal loan, while more difficult to qualify for, can be a less expensive borrowing option. The following explains what each loan is, their advantages and possible pitfalls.

What Is a Personal Loan?

A personal loan is a traditional bank or credit union loan made to an individual for what can be almost any use. Unlike a home, auto or renovation loan, which is for a specific purpose, a personal loan can be used to pay down other debt, to pay bills, to take a vacation or almost anything else.

Personal loans, like other traditional borrowing, require collateral.

The interest rate charged to borrowers is based on the risk to the lender that the borrower represents. The borrower’s credit history and demonstrated ability to repay the loan will factor into the interest rate. But so will the amount of collateral. The higher the collateral as a percent of the loan amount, the lower the interest rate.

Personal loans have shorter payback terms. While home loans offer 30 year amortizations, car loans offer five to seven years, personal loans typically have a one to two year payback period term.

What Is a Tenant Loan?

Tenant loans originated in the United Kingdom. While borrowers with homes could use the equity in their homes as security for other loans, the many apartment dwellers - or tenants - in England who had no home equity found it more difficult to borrow.

Tenant loans were created to fill that gap. Tenant loans do not require collateral and therefore are considered unsecured loans. Tenant loans are available to those living in apartments, those living in government-subsidized housing and even those living with parents.

Because there is no collateral, the risk to the lender is considered to be higher, so tenant loans carry a higher average interest rate than secured lending such as personal loans. However, tenant loans can be for up to the British pound equivalent of $15,000 and can be for as long as 25 years, depending on the borrower’s credit worthiness.

Advantages 

Tenant and personal loans offer advantages to each type of borrower.

Tenant loans are among the easiest loans to qualify for. Qualifying for these loans can be likened to payday loans in the United States where no collateral is required. Your previous pay stubs qualify you for a loan at a given amount. However, payday loans must be paid in full with your next pay check or you incur significant costs. A tenant loan operates like traditional mid-length loans. You have an agreed payback period of a set number of months or years and a fixed interest rate. 

Personal loans offer the flexibility of the tenant loan, but with good credit history and collateral, you can achieve substantial interest savings.

Pitfalls

Comparing tenant and personal loans, there are few pitfalls to personal loans, but two areas to be careful of with tenant loans.

Precisely because tenant loans are so easy to get, the borrower must be sure he is able to repay the loan. It is easier with tenant loans than personal loans to get over your head in debt.

Additionally, tenant loans are available for those with bad credit and lenders aggressively seek new bad credit tenant loan customers because they can charge higher interest rates due to the higher perceived risk.


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