Best Secured Loan & Adverse Credit Loan: What You Should Know
Simply put, secured loans are those which are backed by an asset or, what is more, aptly called as collateral. This could be a house (in mortgage loans) or a car (auto loans), all depending on the purpose of the loan. When the borrower agrees to the loan, he agrees that the lender can repossess the collateral in case the borrower defaults, or cannot pay for the agreed amount.
In this type of loan, lender is given a portion to the rights of the collateral. In case of default, the lender will be able to take possession and use it in whatever way he can, mostly through selling, to raise enough proceeds to pay the borrower’s debt. If the raised amount is still deficient to pay for the borrowed money, the borrower is still responsible for paying for the rest of the amount especially if the lender pushes through a deficiency judgment. In non-recourse loans, however, the collateral is the only claim the lenders have against the borrower, which means that they have no run on the borrower for any deficiencies at all after that the foreclosure (sale) of the property. And even if you don’t fully own your home, you can still put it up as collateral for a secured loan, given that the proportion of the home that you own is given up for security.
These kinds of loans are usually used as a first-hand option (to finance a purchase) or as debt management tools; that is to extend an already existing unsecured loan. In this case, the borrowers are given more favorable terms by lenders because of the security provided by collateral property.
Why People Prefer Secured Loans Over Unsecured Loans?
For those who are in dire need to borrow a fairly huge amount but cannot have it through procurement of an unsecured loan because of bad credit history from CCJs (county court judgements), defaults, and arrears, a secured loan is the most preferable and easiest option to take if you have the right assets. Lenders will be more willing to lend cash this way since there are lower risks for them when loans are backed by property.
Secured loans are also preferred since they allow borrowers to get bigger amounts, ranging from as low as£5,000reaching up to £75,000 (compared to unsecured loan lenders who only allow them to borrow up to £20,000). Interest rates for these loans are also considerably lower than offered by unsecured loan lenders. Interest rates can also depend on the amount of money you wish to borrow, the length or repayment, equity and other personal details such as credit history.
Secured loans provide the borrowers the option for a longer repayment period. You can opt to pay for your loan from a period of 5 to 25 years. Choosing for longer repayment options will give you lower monthly repayments. However, the longer you choose to pay for your loan, the larger the total interest becomes and you end up even paying more.
Also, the cash acquired from these loans can be used for any purpose at all. It could be through paying of existing debts, starting a business, building your investments, or to free up dormant equity on an existing property which can be used as a capital. It can also be used in making purchases (e.g. cars, jewellery, etc.), refurbishing your home, going through the vacation of a lifetime or anything one could dream of; as long as the payments are regularly made then you could probably afford this living.
How long does it take to finalize a Secured Loan?
Secured loans are arranged through professional and responsible services such as national banks and finance houses. Once your secured loan application has been processed, verified, and accepted, you will be given a no obligation offer. This means that you will be able to cancel out on the loan with no penalties for whatever reason you deem necessary for a period of 14 days before the loan is completed.
If you are seriously considering taking up a secured loan to improve or back up your finance, make sure that you check out all the possible options out there. There might be an alternative that is more suitable to your needs. Don’t just nosedive into agreeing to anything. Remember, in secured loans, you are risking losing an important asset if you default, and this could be your own home.