Is Secured Loan a Good Option?

Posted by on Feb 22, 2018 in Financial | Comments Off on Is Secured Loan a Good Option?

Is Secured Loan a Good Option?

Secured Loan Definition: A secured loan is a type of loan where there is a collateral involved. The collateral will be there to stand for the loan and if you default your loan or miss a payment, the lender can take the collateral. This type of loan will have a lower interest rate because the lender has lower risk because they will have a way to recover their money if you default.


A secured loan can be the perfect option for building your credit if you choose the right lender, example a bank or credit union.

Secured Loans | Loan OneTypes of Secured Loans

Mortgages fall under this category because the collateral of your home is your home. If you default on the loan, your home can go into foreclosure and this will cause you to lose your home.


Car loans attached to the car

Another type of secured loan is secured credit cards. The bank will need the Certificate of Deposit (CD) or savings account to be attached to the credit card. Lenders tend to do this for people rebuilding their credit history. The credit limit will be the same amount as the CD and if you don’t pay back the loan, the lender will take the money from the CD attached to the credit card. If you use the CD or savings account as collateral for a loan, you will not be allowed to take out any money.

A title loan is a type of loan where you use a car that you have already paid for and use it as collateral. These loans are usually small and have a higher interest rate when compared to other types of secured loans.


Benefits of Secured Loans

Secured loans will be given to people who are not able to get unsecured loans. This will provide the perfect way of building a credit score. Lenders prefer secured loans because they expose themselves to less risk. Secured loans provide lower interest rates which is attractive for borrowers. You should be a little careful when it comes to choosing a collateral, many of the banks will need a car or home in order to give you a loan. CD and savings account can work too, but you will not be able to touch the money until you have cleared the loan.

A secured loan provides the perfect way of building your credit if you are looking for a way to improve the score. An improvement in the credit score will involve paying everything on time.


Dangers of Secured Loans

The main danger of secured loan is the fact that you risk losing your collateral if you fail to make the payments on time. Having too many loans may cause you to have a hard time meeting your financial obligations. You should carefully consider the budget and ability to make the payments on the loans before deciding to get them. If you make late payments or default the loan, you will have your credit score affected.


Transferring Unsecured Debt to Secured Loans

You should consider transferring your unsecured loans to secured loans. This can be in the form of taking out a second mortgage so you can pay off the credit card, or take a title loan so they can pay any other bills with high interests. This will mean your car or home will be at risk if you fail to pay the loan. You should try your best to pay back the unsecured debt fast. This can mean selling items you have or even taking a second job so you can afford to pay these loans as soon as possible.

Many of the consolidation loans are usually attached to the home, and it is a good idea to avoid this. It will provide protection in the long run and even if it sometimes looks that you are spending forever trying to pay them back. A smaller bank or credit union can sometimes be willing to provide you with unsecured loans so you can lower the interest rate you are paying on your credit cards.


Managing Your Debt

You should start by considering the financial aspects before you can get a loan. Most people will look at the monthly payments they are going to make, but if you are looking to buy a home or refinance, you will need to start thinking how this will have an effect on your total doubt amounts, and the impact the monthly payments you are going to make affects your saving ability and budget. If you start finding it hard to make the payments every month, consider stopping adding more debt and find a way to get out of it.

Having a budget in place will go a long way in helping you control your money and find expenses you can cut back on.

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