Secured loans were once a very popular way to borrow money, but it all started to fall apart during the financial crisis. When the financial system started to fold, lenders found in more and more difficult to get money to lend out to clients. The market has only now started to recover and is on the rise. What clients need to understand is if secured lending is a good option and what exactly it is.
Basically, a secured loan is a loan that is taken out and secured against one of your assets – normally your home, which lenders can seize should you not be able to make the payments each month. Your mortgage is classified as a secured loan, but this is not what banks and other institutions are referring too, they are talking about smaller amounts of cash that is borrowed against your home.
So, if your house is worth 300,000 and you owe 100,000, then your equity would be 200,000. This means that you are able to take out a loan for the value of the equity amount. Normally loans would be between 25,000 and 100,000. If there came a time where you are not able to make the payments, your mortgage lender would be first in line to receive the proceeds of the sale of your home and then the lender would be next in line to get paid.
You do not need a perfect credit score to take out a loan against your home. You would find that you would have difficulty getting a personal loan if your credit score is not that good. Even though you should qualify for a secured loan if your credit score is not that great, you will be charged higher interest. The worse your credit score is, the more interest you will be charged. If you’re looking for a loan, look online to find a personal loan to suit you based on your current circumstances.
The rates are relatively low compared to other forms of loans. Currently the cheapest rates are in the region of 8.5%, which are a lot cheaper that a payday loan or other types of loans.
Secured loans normally have long repayment periods, which means that you have plenty of time to get the loan paid off, but it also means that you end up paying a lot more interest back.
You could end up losing your home if you cannot make the payments. This is the main reason why people should consider rather taking out an unsecured loan. It is still possible to lose your home with these types of loans, but it is a very complicated process and not as likely to happens as with a secured loan.
You could be tempted to party instead of paying off your debts. Consolidating your debts is a great way to give yourself more time to get things sorted out again, but you need to be strong enough to resist temptation.
Personal loans normally have a fixed interest rate, while secured loans tend to come with variable rates, which could be a problem if the rates increase later on down the line.
Are there any alternatives?
Yes, you can get a 0% credit card, which allows you to pay NO interest or you could take out a personal loan instead. If you do not really understand the alternatives, then you should seek the advice of someone who is an expert on the subject.