Are you in need of a large sum of money and possess an asset that you can set up as collateral? If yes, secured loans are your best bet. Why do I say so? Well, for one, secured loans require that you have some form of security before you can be considered. In other words, you can only avail a secured loan if you have some form of collateral. As is with anything else, the devil is always in the details. While borrowers enjoy competitive interest rates and ease of availing a loan due to availability of collateral, they also stand the risk of losing their asset should they be unable to repay the loan. On the lenders part, the preference and ease with which they approve secured loans is because it is less risky on their part. Be as it may, the bottom line is, you need to be well informed before you borrow.
That said, what are the different types of secured loans?
It is imperative to note that secured loans come in different varieties dependent on the purpose for which a borrower is seeking for credit. Each type of secured loan has some of benefits as well as drawbacks and therefore it’s incumbent upon the borrower to go for one that they are most comfortable with.
When we talk about a mortgage loan, we are essentially referring to a type of loan primarily secured by the property that the borrower intends to purchase. In other words, if you are taking out a loan to purchase a home, the lender will use the home you intend to buy as security to your loan. You simply make a down payment and the balance is repaid on a monthly basis till the loan is serviced in full. Should you be unable to repay your mortgage, the lender can always auction or foreclose your home and recoup their money. The repayment period for mortgage loans is between 15 and 30 years.
Logbook loans are another interesting type of secured loan particularly popular with bad credit individuals. A logbook loan is basically secured using a person’s car logbook. In other words, the borrower signs over ownership of their car for the duration of the loan to the lender. The ownership reverts to the borrower once the loan has been cleared. The outstanding thing about logbook loans is the fact that they are easy to avail, has less paperwork, no credit checks and are mostly meant for those struggling with a poor credit rating.
Vehicle loans are a secured type of loan secured against the car being purchased. In other words, the lender pays the required amount of money to the dealer uses the purchased car as security. The borrower then have to pay monthly repayments till the vehicle loan is fully serviced. Lenders however mostly check a person’s credit history prior to approval and those with a good credit history have an upper hand. That said, those with a poor credit history can also be considered but they will have to contend with high interest rates.
Savings secured loans
Savings secured loans are a good fit for individuals with a poor credit rating keen on rebuilding their credit score. This type of loan is secured by the funds you hold in your savings account. The lender basically avails you a loan up to 95% of your savings. You will not have access to funds in your savings account until you clear repaying the loan. The other 5% will be used by the lender to recover interests or any other collection costs in the event that the borrower is unable to repay the loan.