Everything that you need to know about Secured Loans
Do you know that your loans can be secured with collateral? If no, then such loans are called as Secured loans. They are the loans taken by borrowing money from the lender in exchange for an asset pledging as collateral, usually a home, plot or any other asset. This loan can be accessed with interest rates being cheaper compared to other loans as the borrower risks his asset by placing it as a surety, so the lender will charge less interest rate.
Can a bad credit borrower apply for a Secured loan?
There are bad credit secured loans offered by many lenders and banks, where they can apply for the loan even if they have a bad or poor credit score. By placing an asset, makes the borrower get the loan easier as generally loans are not offered to the ones who have a bad credit score.
So, when do you need these loans?
These loans are generally availed by the borrowers when they need money for financial purposes or to fulfill emergency needs. Availing of this loan is like risking our own property with the lender and if the payment has defaulted then the lender will have all the rights to seize the property and cover his losses.
As these loans are riskier to the borrower, it is important to understand how these loans work and what happens if the borrower defaults the payment.
How do Secured loans work for bad credit borrowers?
As we have already explained about the secured loans, now let us see how this works.
Bad credit secured loans are the loans which are offered by only a few of the lenders and these lenders do not worry about the losses that they have to face because the borrower will place an asset as a surety at the time of availing the loan and upon the payment being defaulted they have all the rights to take a legal action against the borrower. This is the best type of loan to consider if the score is less.
The interest rate charged against the loan is generally low, but it also depends on other factors like
Income earned: If the borrower tends to earn more, then the payment is made on time which means good credit score. A good credit score will lower the interest rate charged.
Credit history: If the credit score is low, then interest is charged high as the lenders are not ready to take on the losses.
Any existing debt: Already having other debts means the borrower has a lot of burdens and adding on to the burden will only increase his expenses.
Value of the asset pledged: If the asset pledged is worth the value, then the lender will also consider charging the interest rate less.
How to get these loans?
When you are planning on to take the secured loans, you need to contact several lenders, check with the prices and compare each of them. If the lenders are offering similar rates of interest, then go for the ones who are giving extra benefits and should also read up on their terms and conditions.
It is always good to do some homework before applying for the loan. Take up the loan only if you think you can afford it as the asset placed as security will be at risk if you default the payment. The lender will have a legal right to repossess the asset in order to retrieve the money borrowed.