Understanding the Benefits of Secured Loans

How they differ to unsecured loans

The current financial climate has seen many households and businesses struggle financially, with expenditure often eclipsing income. Because of this more and more people are considering the use of loans; this can be a tricky subject as many people are not financially equipped to take on the burden of repaying a loan, nor do they have good credit scores.

Being blacklisted can ruin your life completely – personally, professionally or financially. When sudden expenses come knocking on your door and you have no money to cover them, financial institutions such as banks do not come to the rescue because of your poor credit ratings. Are you facing this situation? If yes, then why don’t you apply for secured loans?

Secured loans do not only help you at times of emergency but also help to improve your credit score. As the name refers, these secured loans are provided to those people who are blacklisted, those who have defaults and judgements and those who are in arrears with payments. Such situations can happen with anyone due to sudden injury, accident, job loss, divorce etc. There are two types of loans available for prospective borrowers; secured loans and unsecured loans.

Understanding Secured Loans

Secured loans are loans in which a security moveable asset such as a car, truck or any vehicle that is of value is held as collateral in the event that the loan is unable to be paid by the borrower. For instance, a secured loan would be a loan that is granted on the condition that if the borrower defaults on their loan payment the creditors may choose to sell it to raise the necessary payment.

The money from a secured loan can be used to pay for anything you require: high interest credit cards, improvements on a home, an extension or a new kitchen or bathroom, a new or second hand car, tuition fees, refinance existing loans or even for a treat like paying for a holiday. In fact you can use the money to purchase whatever you like but the security offered always has to be a security asset in the form of a moveable asset.

Benefits of Secured Loans

Due to the nature of these loans, they are generally less popular than unsecured loans, as many people do not feel comfortable pledging their assets against the loan. However, due to the security offered to the lender, borrowers who are blacklisted are more likely to be accepted than is common with unsecured loans. Furthermore the interest rates are generally much lower than unsecured loans and the amounts available to loan are usually much higher. The limit is proportional to the value of the security asset being held as collateral, and most lenders might only recognize 50% of your security asset for a collateral loan. That way, they improve their chances of getting all their money back in case the asset loses its value or you default on your payment.

Another attractive prospect is the borrower has a much longer time frame to repay the loan. Chiefly it will be monthly instalments, but they can be spread over anything from up to five years and more. These type of loans are, however, very easy to obtain for those with heavy debt and prospective borrowers should consider very carefully before taking one. The primary difference between secured and unsecured loans is the staking of collateral against the loan, usually the borrowers property.

Unsecured loans are not secured against anything and defaults on payment will usually incur hefty interest, fines and potentially legal action if they continue. However, unlike a secured loan your security asset is not at risk of being sold should you default on payments. A further key difference is that unsecured loans allow for a much smaller amount for borrowers to loan, but also their annual percentage rate tends to be much higher.

Though secured loans can be an unattractive prospect, for many who are blacklisted, in arrears on accounts or those with judgements against their name – in this current economic climate they are an invaluable way of securing finance and helping to consolidate outstanding debts fast. Used responsibly, secured loans can be deployed to significantly change aspects of your life for the better and to even reduce your overall debt burden. Using secured loans may help you to find the finance you need and at a cost-effective price. For more information on secured loans, contact our team at XCELSIOR Loans today.