A Closer Look At Secured Loans

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It won’t be worthwhile discussing about logbook loans without a deeper understanding of what secured loans are. In the simplest terms, secured loans are finance agreements which are backed up by collateral. When we say collateral, it’s essentially a property you own with a substantial amount on it, such as your car or your home. Basically, the collateral serves as “security” for the lender that you’ll be able to pay your debt, and if not, they’ll have the right to “repossess” your car or “foreclose” your home in order to recover their losses. If you’ve heard of secured credit cards before, they work similarly, except that with secured credit cards, actual cash was provided as security in the event that the borrower defaults.

Reasons to Get a Secured Loan

Why provide collateral you may ask, when it’s very risky on your part? Here are some of the reasons why borrowers may opt for a secured type of lending:

You get to borrow more. Most lenders won’t just lend any amount to anyone, unless your credit is perfect or close to being one. When the loan is unsecured, lenders often give you a much lower borrowing limit because lending a huge amount poses a significant risk to them. However, if there’s collateral present, that risk is erased. Because of the value in your property, they can recover any amount lost in case you fail to pay off your loan. Depending on the equity that is present in your collateral, you can borrow as much as £100,000 and even more, which is not something you’ll encounter with unsecured loans.

You get lower interest rates. Some borrowers may not exactly need to borrow a hundred grand, but they still choose to put down their collateral in place in order to be eligible for lower APRs. When there’s security against the loan, the lender gains more confidence in the deal, and becomes more willing to lower down the interest rates.

You simply have no other choice. If you have bad credit or insufficient credit history, sometimes there’s just no other option left to qualify for a loan but to secure collateral against it. Basically, it follows the same principle when you want to apply for a credit card but haven’t established your credit yet. Typically, you need to have a substantial amount of cash in your account that they can get hold of if you default as a means to negate the risk. When you have zero credit or poor credit, sometimes that’s just how things should go.

Please note, however, that even if the loan is secured, you can’t compete with attractive rates when you have bad credit. Still, the APR is generally lower than other unsecured loans meant for bad credit.

What You Should Know before Putting Your Collateral down the Line

No matter how good your intentions are for taking on debt, there’s always a danger associated with a secured loan or any loan for that matter. Before risking your hard-earned assets, follow these simple tips

Know how much equity is present. Before anything else, you need to be sure that the amount in your collateral is evaluated correctly. We’re not saying that all lenders will cheat on you regarding your collateral’s value, but it’s always best to be safe now than be sorry later on. It’s best to have a third-party appraiser give you the exact amount of equity in your property, so you’ll be able to negotiate for the right loan amount.

Make sure you are dealing with the right lender. There’s no way to precisely know how the deal will go, but you can gauge the outcome if you are confident that you are working with a reputable lender. Look for one that has a proven track record not just in review sites (as they may be biased), but from reliable online sources and people you know as well.

Think for the long term. While the present need may be urgent, it shouldn’t outweigh the importance of thinking about the future as well. Because secured loans are often associated with huge borrowing amounts, these loans often last for several months up to several years of repayments. Just think about that money getting stripped from your cheque every payday. That could be a lot of cash in your account if you’d saved it. More importantly, it can make your budget real tight, living less room for enjoyment or future emergencies.

A secured loan may actually be worth it, if the purpose is right, and if you know how to land a good deal. Just be sure you are fully aware of the consequences and that you can hold up to your end of the bargain.

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