How to get Secured Loans
If you need money then borrowing against your home is one option other than a mortgage and are called secured lonas which means they are secured over the property. Interest rates are generally lower than unsecured loans as the risk to the lender is less. Here’s all the information you need to know.
Borrowing money has had bad press over the last couple of years. A huge number of people have been spending borrowed money to live beyond their means. However, most of the money that has fuelled this dangerous debt mountain, the avalanche from which has now engulfed our cozy free-money lifestyle in a debris of bankruptcies and foreclosures, has come from unsecured loans.
The Difference Between a Secured and Unsecured Loan
With an unsecured loan the lender typically relies on your promise to pay it back. Credit card debt is typically an unsecured loan. This kind of loan is usually given based on credit rating alone. The lender is taking a bigger risk than with a secured loan, so interest rates for unsecured loans tend to be higher.
A secured loan, on the other hand, is a loan in which the borrower pledges some asset, such as a car, property, or other valuable item such as jewelry or a previous investment, as collateral for the loan. If you default on the loan, the creditor can take possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower. This kind of loan is seen as less risky for the lender and so interest rates can be lower.
Why should I Consider a Secured loan?
As well as a lower interest rate, you may be able to borrow a higher sum with a secured loan. Secured loans are often for amounts over $10,000. These large amounts are very difficult to get as an unsecured loan.
If you have a poor credit rating it may be possible to get a secured loan if you still have assets to offer as collateral.
Secured loans are typically taken over a much longer time than unsecured loans which, together with the lower interest rates, results in a much lower monthly outgoing when to compared to unsecured loans.
A secured loan could therefore be used to pay of a number of unsecured loans for example, on credit cards, consolidating the loan amount and reducing the monthly payments, as well as the final cost of the loan.
Because of the lower risk to the lender it is often much easier to get a secured loan. Even in the current economic climate, houses are still worth a considerable amount of money, and are still a favored asset when secured loans are made. Should a borrower default on the loan, in theory at least, the house can be repossessed and sold to cover the debt. In practice, the cost involved in house repossession means that the lender will often seek other means to recover his money before considering a house repossession.
Secured loans can also be used to release equity in your property or as second mortgages.
How Can I Find the Best Unsecured Loan?
Most banks offer secured personal loans with lower interest rates, as the risk to them is reduced. As with any kind of financial product, you will need to shop around, compare deals and then make a decision based on what best fits your situation. It is advisable to research the products available from a variety of different lenders, taking into account:
- Interest rates,
- Repayment amounts
- Fees. Many lenders do not charge application and set-up fees.
- Terms and conditions that may apply to the loan. Some lenders charge a pre-payment penalty if you pay more of your interest or if you repay earlier than the duration of the loan.
The Internet is, as ever, a very good research tool for doing your initial research on lenders. Many sites will even allow you to input your data on-line and will give you a decision on a loan in minutes, often without a credit check being carried out.
If you have a bad credit rating don’t try to hide it from your lender. Discuss your bad credit and your personal circumstance with them and seek their advice on the most suitable loan for your situation.
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