Features of Secured Loans

Filed by admin under Loans, Types of Loans — 4:23 pm
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When applying for secured loans, it is vital that borrowers fully understand the features, benefits, and disadvantages in order to make an informed decision. Understanding the features of secured loans allows borrowers to tailor loans to their specific needs while avoiding costly mistakes. Don’t be afraid to consult professionals. If you want you can easily check websites that specializes on this, like Motley Fool for instance. Keeping yourself informed is the best defense against shaky loans.

What is a secured loan?

Secured loans are protected by collateral (yours). Home loans, home equity loans, and car loans are the best examples of secured loans because the lender has the option of seizing your property if you default on the loan. Even if you don't property, you may still take out a secure loan by using stocks and bonds as collateral.

What are secured loans for?

Typically, secured loans are used for home and vehicle purchases, as well as debt consolidation. However, some people also use secured loans (through home equity loans) to make large purchases or to perform repairs and updates to their homes.

Are interest rates fixed?

Secured borrowers can choose between variable and fixed interest rates. Be careful, though, as variable interest rates do fluctuate and can easily rise to unaffordable levels. Despite the fact that there are limits to how far variable interest rates can rise, it is wise to evaluate the worst-case-scenario before making a decision.

What are the benefits of secured loans?

Secured loans offer borrowers the chance to borrow large amounts of money at lower interest rates with typically good repayment terms. Even if a borrower has bad credit, having collateral can allow him the take out a secured loan—thereby rebuilding a damaged credit score.

In addition, secured loans provide the opportunity for borrowers to borrow more on a secured basis than they might be able to otherwise. For example, those choosing home equity loans can often borrow up to 125% against the equity in their home. Why? Because lenders know that secured borrowers are more likely to pay their debts.

What are the drawbacks of secured loans?

No one type of loan is perfect, and secured loans are no exception. First, secured loans may take longer to secure. For example, home loans and home equity loans require appraisals—as well as the standard credit check and financial information—which can literally add weeks to the loan process.

Perhaps the biggest drawback to secured loans is also their best feature—collateral. While collateral will garner the borrower lower interest rates and higher loan amounts, remember that collateral is security for the lender. Failure to pay means that any collateral put up to secure the loan can be repossessed if the borrower cannot make repay the loan.

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  • Comments (1)

    1. Trackback by Jessie — June 29, 2008 @ 1:07 am

      Jessie…

      Great post, very informative. Have learned a lot from your site….

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