If you need a large sum of money to meet a financial need and you have an asset you can use as collateral, then getting a secured loan may be the best route to take. But which type of secured loan should you take? It’s important to understand how each type works to make an informed decision. Here are quick previews to the different types of secured loans available at your disposal.
If you’re planning to purchase a home, you’ll likely need a mortgage loan like everyone else. The loan is secured against the home you are buying. This means that you pay only for the down payment then borrow the rest of the amount from the bank or a major lender. You will need to pay for the loaned amount otherwise known as the mortgage on a monthly basis. In the event that you are unable to repay the mortgage, the bank or lender may foreclose your property and sell it at auction. In general, mortgage loans last 15 to 30 years. Interest rates are lower and cheaper since there’s security involved.
Just like a mortgage loan, car loans are secured against the car being purchased. With a car loan, you only need to pay for the down payment typically 10 to 20% of the car’s value. The rest is covered by your lender, which you need to repay per month until fully repaid. To be eligible for a car loan, you must have a good credit history in addition to a steady source income. In the event of non-payment or default, the lender has the legal right to repossess your car and sell it auction to cover for your outstanding balance.
Logbook or title loans are another type of a secured loan. As opposed to car loans, logbook loans use already paid off vehicles as collateral. The loan should be less than 10 years in age and must be free of any financing to be eligible for a logbook loan. Lenders may also require for the car to have full coverage insurance. Logbook loans are ideal for people with bad credit. The loan does not require any credit check hence easier to avail and get approved. But just one downside, the loan can be expensive because of the higher risks lenders are taking.
Savings Secured Loan
If you have a poor credit rating and you want to build your credit, CD or savings-secured loans may be a good option to consider. These types of loans are secured by a certificate of deposit or your savings account. Opting for this loan means that the bank holds the funds in said accounts so they can lend you a loan up to 95% of the funds in the accounts.