James RobertAre you looking for a personal loan? You might have tried hard to get an unsecured loan to avoid pledging something but failed. However, a secured personal loan can come to your rescue at such times. Did you know that, on average, you could save $104 on a $1000 secured loan over a three year period as of 2020?
Undoubtedly, you would want to know the types of secured loans available, isn’t it? You might want to understand the pros and cons of secured personal loans. Reading this article will provide you with the necessary information to enlighten you.
Why Take Secured Loans?
Secured loans are a type of personal loan that you take when you don’t have a great credit score. Suppose you have a credit score below 500, and you cannot afford the rates of bad credit loans. You can opt for a secured loan.
Further, here are some reasons to take secured loans:
- To acquire a commercial property
- To get emergent funding
- Invest in business
- To consolidate your personal loans and credit cards
- If you need to remortgage your home
Note that when you take a secured loan, you need to set aside collateral that the lender can seize in the event you are unable to repay the loan. However, you will get lower APR, and interest rates with such loans as the lender’s risk are reduced.
Types of Secured Loans
Depending on your need, desire, want, and circumstances, several types of secured loans are available in the market. You can choose the one that befits your situation from the below types:
Mortgages
Mortgages are used to fund your home or other real estate properties. Most often, you can take a secured loan to buy your property by providing the financed property as the collateral.
Auto Loans
Buying a vehicle? You might need an auto loan to purchase your vehicle. However, if your credit score is bad and you cannot get an unsecured loan, you can get a secured auto loan. In such a case, the financed vehicle will be the collateral. This means the lender will own the title deeds of the vehicle until you repay the loan.
Secured Personal Loans
Secured personal loans allow you to borrow cash for unmitigated emergencies, medical expenses, vacations, and home improvements. In this case, you can provide collateral such as cars, trucks, boats, investments, life insurance, art, savings accounts, jewellery, and precious metals.
Secured Credit Cards
You can use secured credit cards to get a line of credit equal to the amount you commit as a security deposit. Such a card can help you improve your credit score when you pay off your debts, and you can convert to an unsecured credit card.
Home Equity Loans
Home equity loans are loans in which your home equity is the collateral. You can receive a lump sum of cash on which the interest rate increases.
Pros and Cons of Secured Personal loans
Getting a secured personal loan is easier when you have a bad credit score. It allows you to fund your medical expenses, vacations, and other expenses. However, there are pros and cons to such loans.
Pros
- Lower interest rates
- Easier to qualify
- Tax reductions possible
Cons
- Collateral seizing is possible if you don’t repay your loan
- Less flexible borrowing
Endnotes
When you want to pay lower interest rates but don’t qualify for an unsecured personal loan, it is best to opt for a secured personal loan. However, in such cases, you need to put up collateral of your asset against the value you are borrowing.
Depending on your circumstance, you can take a mortgage loan, secured credit cards, auto loans, home equity loans, and secured personal loans. Note that as a borrower, this kind of loan can prove risky as the lender can seize your collateral if you cannot repay the loan.
So, tread with caution and get secured personal loans to mitigate emergencies.
