There are many types of secured loans available in the market. Secured loans are personal loans that require collateral or security, which means high risks. If you use your home, for example, as collateral, you may lose the property in case of nonpayment. Despite the risks of repossession, secure loans remain a highly recommended option than other types of loans because of its advantages. Below are some of the reasons why you should consider a secured loan.
You can borrow higher loan values.
Because there’s security involved, borrowers are able to avail higher loan amounts depending on the value of the collateral or security. Some personal loans may have capped limits but the loan value is still generally higher than if you apply for an unsecured loan. If you need a large amount of money to meet a wide range of personal needs such as home renovation, medical expenses, vacation and other major personal expenses, opting for a secured loan makes perfect financial sense. It won’t be easier to get approved for as unsecured loan, but the higher loan value should be worth it.
Interest rates are usually lower.
Another chief advantage of personal secured loans is the lower interest rates. With a secured loan, the collateral lowers the risks for lenders thereby allowing borrowers to enjoy a more competitive interest rates in general. If you pay off the loan, the lender gets back the principal plus interest. If you are unable to repay the loan, the lender gets the collateral. Either way, the lender is barely taking any risks while you are embracing the risks of repossession. For this reason, it’s only right that you get lower interest rates for the personal loan.
Credit rating may not be a factor.
Lenders that offer personal secured loans do not necessarily consider your credit history a major factor. Yes, lenders run credit checks but a number of late or missed payments will rarely affect your loan’s approval. As long as you meet the loan requirements and your collateral is cleared, you can expect approval as quickly as possible. If you have a history of ccjs or defaults, however, it may be a different story. Some lenders may not be as open to lend you money because there may be underlying issues that may increase the risks on their end.
But having good credit can be advantageous.
If you have good credit and has always been a responsible consumer, this is a chief advantage if you’re planning to take out a secured personal loan. Because of your stellar credit rating, lenders are more willing to offer you higher loan amounts, often more than the perceived value of your collateral or security. Provided that you are also employed and has proof of steady income, some lenders may let you borrow up to 125% of your collateral’s value.
Lenders are also more flexible with their terms.
When collateral is involved, lenders are not only more willing to do business with you but they are also less strict with their terms. Repayment terms, for example, are longer than unsecured personal loans. In fact, you may be able to tailor the repayment term according to what’s most comfortable for you financially.
With a secured loan, employment is not always important either. While majority of lenders would want borrowers to have a good paying job and a steady income, some lenders may consider a loss job as a good reason for the loan provided that the collateral is covered and repayment is arranged accordingly.