Is a Secured Loan as Scary as it Seems?

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A secured loan is offered against collateral. What form that collateral takes is negotiable, but it is usually either a house or a car depending on the size of the sum that you borrow. The thought of using collateral is relatively scary as borrowers become wary of losing one of their possessions if they’re unable to make the scheduled repayments. Although secured loans may sound scary, they are actually incredibly common. There are a variety of reasons why secured loans are less scary than you think, here are just a few.

Securing a Larger Loan

If you require a large loan, a secured loan may be your only option. Banks very rarely approve unsecured loans for large amounts and a bank is much more likely to approve your loan request if you put down some form of collateral. As an example, a company such as Nemo Personal Finance will provide you with a homeowner loan of up to 90% of your property’s value (less your existing mortgage). It would be unthinkable to borrow this much without some form of collateral.

Lower Interest Rates

Secured loans attract a lower rate of interest than an unsecured loan. This means that if you’re looking for an economical option over a lengthy period of time, a secured loan is generally the best option available.

Options for People with Poor Credit Ratings

Unless you have a perfect credit rating, it can be very hard to get an unsecured loan as you’re deemed to be a ‘credit risk’. For a secured loan, however, a bank will look beyond your credit risk as the collateral lessens your risk status.  If you have a bad credit rating you’ll probably still be charged a higher rate of interest on your loan, but you’ll be much more likely to be accepted.

Questions to ask Yourself

Before you accept a loan you need to ask yourself:

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• Can you repay a variable loan? If you’re offered a variable loan then you have to remember that rates could go up as well as down. If you’re offered a rate that’s on the limit of what you can afford, you may struggle if the rate increases.

• Can you make the payments? A bank may offer you a loan and think that you can repay the monthly amount. However, you know your personal financial situation best. Always redo the sums and check.

• Are there any other charges? A secured loan has a fixed repayment schedule. As part of this, you have to reply in writing if you want to change the schedule. This usually has to be 30 days before the change and you may be charged. Always check carefully.

There are hundreds of reasons why people get a secured loan and thousands are approved every single day. Always research your options fully and remember that just because a bank makes you an offer doesn’t mean you have to accept it. Plan for the worst case scenario and check that you can still afford it before accepting. That way, you never have to worry about your collateral as you’ll always be able to make the payments.