Secured Loans What You Need To Know?
Every individual’s credit cannot be ignored. Be aware of the importance of your credit score. You’ll know why it’s very important when you need to apply for some loans either for personal or business use.
Credit history is a vital criterion for lenders to decide whether or not to approve your loan application.
A bad credit history can be an obstacle in obtaining a loan. It doesn’t matter anyway. There’s always a solution. A secured loan can help you build or re-establish your credit.
What Is a Secured Loan?
A secured loan is a type of loan that is backed by some asset, like a car or real estate. To obtain the loan, the borrower pledges these assets as collateral. The collateral for secured loans will become a secured debt owed to the lender. In the event that the borrower defaults on the loan, the lender will take possession of the asset. The lender may sell the property to pay off the remaining balance of loan.
Most banks and financial institutions are willing to provide borrowers with secured loans because less risk is involved. Four types of secured loans are available in the current market.
You can choose the one that meets your financial needs:
Mortgage loans are very common. The collateral for this type of secured loans is the property, like a home.
A nonrecourse loan is a kind of secured loan that the collateral is the only security for the loan. When the borrower defaults on the loan, the lender has no further recourse. Vehicles, expensive jewelry, property and stocks can be used as collateral.
In the case of any deficiency, the lender will sell the secured property to pay off the debt.
It’s a special kind of secured loans that the creditor takes back the property when the borrower does not make payments as agreed. This is very common for auto loans.
Secured Loans VS Unsecured Loans
Most loans are either secured or unsecured. Though unsecured loans do not require any collateral, creditors will charge higher interest rates to compensate that risk.
As opposed to unsecured loans, secured loans come with a number of benefits:
• Lower Rate of Interest
Besides mortgage, secured loans offer the lowest interest rates as for personal finance. The APR for secured loans typically ranges from 5% to 25% based on several factors, such as the equity of the collateral, credit status and repayment schedule. It can save you much money on the interest if compared with unsecured loans.
• Higher Loan Limits
You can get larger sums when taking out a personal loan secured against your home or other property. Since lenders assume little risks, they’re willing to offer far higher borrowing levels than unsecured personal loans. Of course, the specific amount you can borrow partly depends on the value of the secured property.
• Favorable Application Requirements
In most cases, it’s almost impossible for people with poor credit to get unsecured loans. In contrast, a secured loan is the only option if you do not have a perfect credit history. When you’re able to provide a security against the loan, the creditor will overlook your poor credit history. Thus you can rebuild your credit if you can make payments on time every month.
• Flexible Repayment Schedule
Lenders always allow borrowers to repay the loan over a longer period of time as opposed to unsecured loans. It can be as long as 30 years. With an extended repayment schedule, you can reduce your monthly payments within your grasp.
When applying for loans, all of you want to enjoy a lower interest rate. And then your lender will advise you to choose a secured loan. A secured loan means you have to attach collateral to the loan, and if you failed to pay for the loan, the lender will gain the right to take away your collateral to compensate his/her financial loss.
When looking for finance options, people are always led into a crossroad where they have to make a choice between secured and unsecured loans. As the most conventional method of financing large sums of money, secured loans are always a preferable option for many borrowers.