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Any loan that is supported by an asset is considered a secured loan. This is the simplest explanation of a secured loan that can be understood by anyone.
The asset which can be in the form of a house, car, equipment, jewelry etc. is known as a collateral by most lenders. It is important to note that the collateral is always either much more in value than the amount being requested for or of the same value.
Lenders need collateral because often than not the amount being given is very huge hence the desire for a collateral to serve as security for the lender.
This security is why the loan is referred to as secured loans by lenders. Collateral’s given to the lenders by the borrowers is often sold to make up for the amount loaned when there is a default (meaning failure to make repayments).
The lender does not immediately sell the asset because of one default, but when it becomes continuous or repayment has stopped completely. All of this has been spelt out in the loan agreement form where both lender and borrower sign to seal the deal. In the case of mortgage secured loans, the house that the borrower wants to buy is used as the collateral so in case of default the house is sold by the lender to recoup their money. The process of the lender taking over the house and selling it to recoup their money is called foreclosure.
There is deficiency judgment a lender can get from the courts to claim the rest of the money with the borrower if the worth of the collateral has reduced.
In case of secured loans the risk very minimal or nonexistent for the lender so the interest rate is much lower on such loans.
Significant Characteristics Of Secured Loans
There are a few features of secured loans that borrowers must know when going for such loans.
• Rates are lower :
The mere fact that there is a collateral as security for the loan gives the lender some comfort. This reflects in the interest rate which is lower than when there is no collateral.
• Asset support :
The arrangement between a lender and a borrower in a secured loan agreement gives the lender the support of the asset. Giving the lender the security they need to freely give out huge sums of money.
• Amount given are huge:
Making the decision to use your asset as a collateral for a loan doesn’t come easy. So for any individual to do so it means the money is very important and huge. Because if you need money which is not huge you can easily get it through unsecured loans.
• Loan is against item to be bought :
Generally the borrowers of secured loans are the ones buying the possessions. This agreement allows the borrower acquire the property as easy as possible whiles the lender remains secured.
• Business secured loans :
A little difference can be seen when it comes to secured business loans. In most cases business loans are much bigger than that of auto loans or housing loans. The reason being that businesses have much more money than the individuals seeking housing or auto loans so can give higher repayments amount.
Financial institutions can then use machines, raw materials or assets as security for the loans.
Types of secured loans available
Lenders are always relieved when it comes to secured loans because they have assets from borrowers as security. In the same regard borrowers who have assets to use as security for their loans also get to borrow at lower interest rates. So it’s a win win situation for both parties (lenders and borrowers).
With that said, the borrow must make sure payments are on time as agreed upon.Not sticking to the agreement will mean the borrower loosing his or her property.
Different types of secured loans are available from which borrowers can chose what suits them best. Each of these secured loans have their own pros and cons that makes them unique.
A few have been discussed below :
• Mortgage loans
Mortgage is simply described as loan that is protected by a property to be bought. If the one who has the loan delays unnecessarily with repayments or doesn’t make payments towards the loan at all the lender has the right to auction the property. The mortgage loan allows the borrower to have a long tenure because the amount involved is huge.
Typically the loan can span between fifteen to thirty years or even more depending on the nature of the property, borrowers income as well as the interest rate. Interest rate for mortgages are not too high because of the asset used as security for the loan. With mortgages there are basically two types of loans that are available. Either variable/adjustable rate or fixed rate mortgage loans.
The difference between these two mortgage loans is that with the fixed interest rate there is no change in the rate for the life span of the loan. Making it easy for the borrower to schedule or plan towards payments since it is the same throughout the life of the loan. Whiles the variable or adjustable rate does not work like that. The rate can change whiles paying up, it normally starts from a low amount and gets higher. The change is more prominent from the third year towards the fifth year of the loan. Usually the lender of the loan, makes sure about ten to twenty percent of the loan is deposited before the loan is granted.
A borrowers credit history has a lot of influence on the percentage of payment made. The better your credit history the less percentage you are required to make.
• Title loans
Short term loans that generally use paid off automobiles as collateral are called title loans. Although vehicles are the main source of title loans, not any type of car is accepted. The vehicle must be in very good condition and must not have been used for too long and has fully been insured to qualify for a title loan. Evaluating the car is a very consistent thing lenders do on cars that are to be used for title loans so as to get its value. Normally the amount of money lenders give to borrowers for title loans are usually a little above half of the price of the car. It is a way for lenders to secure themselves and also make it easy for them to retrieve their monies in case of default. You do not need to show your credit scores to the lender instead, you must show proof of getting steady income. Unfortunately due to the high interest rate on title loans, it is generally more expensive than most secured loans on the market.
• Car or vehicle loans
Car loans are loans given to purchase cars. However the same cars being bought are used as collateral for the loan.The full amount for the car is absorbed by the lender and the car is paid for by the lender to the car dealership directly. The borrower is made aware of this transaction and then the monthly repayments can begin. Repayments are in installments whereby every month the borrower is required to make payments which include interest and other fees where applicable towards the loan. A loan will be approved when the lender is satisfied with the borrowers credit history as well as other information provided. If you have a bad credit history, do not worry , you can qualify for a vehicle loan. Only know that the interest rate on your loan will be much higher.
• Pawn broker loans
Who is a pawnbroker? Pawn brokers are people who give loans at short term basis whiles placing an embargo on your asset (collateral) until the loan is paid back. Commonly used stuff borrowers use as collateral include jewelry, musical instruments ,electronics and sometimes guns depending on the state you find yourself in etc. The condition as well s the value of the loan determines how much you will get from the pawn broker. If the item used as collateral is in very good shape then the amount will be higher and vice versa. Another condition for pawn brokers is that the item being used as collateral must be in demand so that in case you are not able to pay back they can sell off your asset without any difficulty. Pawn brokers work within a frame of time, so they will give you the time within which you should pay back the money (including interest) for your asset. If that time elapses, they have every right to sell off your asset in their pawn shop to recoup their money.
• Savings and certificate of deposit loans
If you have a certificate of interest or a savings account with enough funds in it you can use that as a collateral for a loan. People this kind of loan benefits most are individuals who have not built their credit history or those who have bad credit history. Usually ninety five percent worth of your savings account funds or your deposit is what will be loaned to you. The five percent left is used to calculate the interest rate and other fees put on the loan. The lender puts a hold on all transactions regarding your deposits or your savings account until you pay back the loan in full.
Do secured loans affect credit? A borrower needs to shop around to be sure he she finds the best kind of loan that suits his or her financial situation. Note that every lender has their own peculiar way they do business so when choosing a loan that suits you it is important to also consider the lender giving the loan. Keep comparing different options of lenders and the services they offer. This is to make sure you get a lender that will be there for you in case you encounter any difficulty during the tenure of the loan. Lenders give different interest rates and also add fees to secured loans so shop around to get a borrow who is transparent about their interest rate and fees. The main idea behind shopping around for a lender or loan that suits you is that, you get to save some money when you get a lender with lower rates. Amount saved can go towards paying off your loan quicker than anticipated. Going for a secured loan will not affect your credit rating in anyway unless you default in repayments. Just like every other loan, when you default in payments your credit rating is affected it works just the same with secured loans.
Secured loans and its benefits
The benefits for secured loans are a lot but the two major benefits that is obvious when it comes to secured loans are :
• Lower rates for secured loans are very common due to the fact that they are less riskier to the lender as compared to unsecured loans.
With the collateral that comes with secured loans the lender knows that in case the borrowers defaults in payment they can fall on the collateral to recoup their money.
• You are considered a borrower with less risk by the lender so you can take a secured personal loan even if you have a bad credit history or no credit history at all.
• If you have been denied an unsecured loan from any financial institution, you can go back with an asset as security for a loan and you will be considered.
• Building a credit history is very easy with a secured loan because of the lower interest rates that is associated with secured loans.
• The amount of money that comes with secured loans are huge because of the type of purchase you want to make. Example is mortgage loan (buying a house).
• A secured loan ultimately helps you acquire another property in addition to what you already have. It’s a way of building a future for yourself and your generation.
Secured loans and its downsides
• The first and major drawback that comes with secured loans is that loosing your property is very possible because when you default the lender can take possession of your asset.
• Taking a collateral as security for a loan makes it easy for you to get a huge amount of money.
In as much as this is a positive thing it also doubles as a bad thing because the repayments will be huge as well and this can easily affect your budget monthly.
• Your credit score can also be badly affected when you default on your loans.
• When you bring an asset to a lender as collateral for a loan, that asset seizes to be yours till you have finished paying back the loan.
Are secured loans easier to get?
Needing a loan urgently to take care of family issues and other emergencies is not a hassle anymore.
Fortunately there are so many loans available on the market and secured loans is part of them.
Secured loans are one of the best loans you can get in the loan market especially because of the lower interest rate that comes with it.
Apart from the benefits of secured loans as discussed above they are also very flexible and because of the collateral that is requested for as security, you are able to get huge amounts approved.
Lenders and borrowers both are satisfied when it comes secured loans.
Lenders feel secured because of the collateral whiles borrowers are sorted because of the low rate and tenure of loans.
It’s been a preferred choice for most borrowers who have assets to use as collateral because it has been in existence for long and it’s a tried and tested loan option.
How easy it is to get secured loans is also major factor why borrowers opt for it.
The most important thing for a borrower is to have an asset he or she can use as collateral for the loan required.
Some of the assets accepted by most lenders as collateral are houses, cars, jewelries, certificate of deposits etc.
Paperwork for secured loans are not cumbersome at all, especially when all the documents for the asset is in order.
What is worth considering before taking a secured loan?
In every individuals life, all financial decisions must be taken seriously because it can easily disrupt your whole budget and style of living.
So it is very necessary and important to think about it thoroughly before taking the plunge.
Below are a few points to consider before taking a secured loan:
In most cases secured loans are given with variable interest rates although you can find some with fixed interest rate.
Due to this when calculating your APR you should factor in the possibility of the interest rate going up.
With that said, your target is to get the lowest interest rate secured loan so that even when the rates go up it wont be too much that it will affect your budget.
So in effect know that the interest rate you will be paying at the end of the loan will not be the same as you started with.
The interest rate given by the lender will be mainly based on value of the collateral you brought, how long the loan is for, amount to be borrowed, your credit score.
Financial capacity of client
The need to purchase something which will be beneficial to you is why you will go for a secured loan.
If the need for the loan is not very urgent there is no need to go for the loan since interest rate as little as it is still means you parting way with money.
A lot of thought must go into the taking of any loan and especially secured loan because of your asset being involved in the transaction.
Don’t even try to take a secured loan if you are financially stable even though you may have an asset you can use as collateral.
This is because if you are not financially strong after a few repayments the possibility of you defaulting will be high and it also means you will be losing your asset.
Think carefully and be sure you can make payments monthly for the entire duration of the loan before you even consider taking the loan.
Loan to value ratio
When you bring an asset such as a mortgage but haven’t finished paying off it means you will not be able to get the amount you want.
Because the lender will check the equity that is in your property and if its high then you will not get enough from the lender.
The lender considers a lot when it comes to the collateral people bring because it must be worth more than the amount you are asking for.
Accepting an asset from a borrower means that in case of default the lender will be able to recoup their money.
If your asset is not as worthy as the amount being given to you, it means the lender is running at a loss.
So its two things, its either the lender will refuse your offer for the loan or give you an amount that is worth your property.
The only problem is that the amount given by the lender might not be what you requested for.
Secured loans are one of the best loans available on the financial company. It is very secure because it has been tried and tested and has helped a lot of people live their dream lives when it comes to owning properties. In as much as the secured loans comes with advantages just as has been discussed above, it also has disadvantages and must not be taken lightly. Make sure you can afford a secured loan because if you cant it will cause you a lot with regards to you losing your property. Do not opt for secured unless you are sure of it. However, it comes with low interest rates and long tenure which can give you ample time to pay off the loan.You can contact afterloans.com for your secured loans now.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.com is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to the United State of America laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that the United States of America law allows.