Everything to Know About Secured Loans
There are a variety of loans available for people who are in need of money. Typically, loans fall into two categories. Namely, secured loans and unsecured loans.
Secured loans are much easier to get because they involve putting up an asset on the line which has a greater value than the amount of loan money you’re willing to apply for.
A lot can go wrong if one doesn’t have sufficient knowledge about how secured loans work. This article will shed light on what they are and what one needs to get them approved.
Here’s all you need to know about secured loans:
What Are Secured Loans?
Secured loans are loans that can be obtained when there is some kind of collateral or asset at stake for protection, such as car title loans Los Angeles where you transfer the title of your loan to the lender.
The borrower puts up any item on stake such as their home, vehicle or any valuable and the loan giver places a lien on that item. In case, if the person fails to pay back the loan or delays it then the loan company has the right to sell the item used as collateral to get their money.
Types Of Secured Loans
There are many kinds of secured loans which require the borrower to use something as collateral. It may be a vehicle, home or any valuable that has a great value on the market. Here are a few:
Mortgage: This loan can be taken to buy a property. A contact is signed between the lender and the borrower deciding that the lender has full authority to seize the property if the borrower fails to make payments on time.
It also goes by the name of home loan. Since home prices can be huge, mortgage loans generally run for more than 15 years. The borrower pays an interest rate every month on this loan.
Vehicle: This loan involves buying a car. The lender pays the car dealership on behalf of the borrower. The borrower gets possession of the car and has to pay monthly installments to the lender along with interest rate.
The amount of interest to be paid depends upon the credit history of the borrower. Better the credit history, lower the interest rates. In case of payment failure, the lender may take action and also seize the possession of the car.
There are other secured loans as well such as construction loans, home equity loans, bridging loans, term loans etc.
Benefits Of Secured Loans
Less Interest Rate: Since secured loans generally run for more than 5 years, the interest rate is lower compared to unsecured loans. This is because secured loans are mostly taken when a huge amount of money is required such as to buy a house or a vehicle.
Borrow Huge Amount: Unlike unsecured loans, you can apply for a greater amount of money when applying for a secured loan. However, make sure that the value of your asset is more than the amount of money you’re wanting to get as loan money.
Can Get On Poor Credit History As Well: People with poor credit history can also have a secured loan approved because the lender puts a lien on the borrower’s asset as protection. In case, the borrower fails to pay the money, the lender can get his money back by either selling the borrower’s asset or keeping the possession.
Improves A Bad Credit History: Since the borrower makes payment on time for a long time, it can improve their credit history. This can help get better job in the future etc.
It’s important to go for a secured loan only if you have a worked out plan to pay it back on time so that you don’t lose your property.