Secured loans may prove to be a viable and economic way of obtaining capital for any one and for a number of purposes.
The basic principles behind loans with security (ie secured loans) are relatively straightforward:
- providers will always seek to quantify and where possible, reduce their risks in terms of being unable to recover their money in due course;
- if the borrowing is secured against a capital asset (such as your home or car), the provider may see this as reducing their risk – this may encourage them to look more favourably on the application;
- as the potential borrower, you will be hoping to obtain lower interest rates and possibly larger loan amounts, by virtue of the fact you are offering collateral for the loan, thereby reducing the provider’s risk.
What is ‘collateral’ and how does it work?
That is also relatively simple:
- in effect, you guarantee your repayment of the amount by linking it to something of significant value that you own – property and motor vehicles are classic examples;
- should you be unable to repay the borrowing, the provider may seek to force the sale of the asset guaranteeing the amount in order to recover the money they are due from the proceeds (though it is important to note that providers are typically very reluctant to take this step and will always do what they can to avoid doing so).
In a nutshell, it really is as simple as that!
Unsecured loans may be available from some providers but they may typically be for smaller amounts of money. They may also be offered at a higher interest rate than secured lending, due to the increased risk the provider is taking.
You should remember that your home could be at risk if you fail to maintain payments on any loan that is secured against it, however, secured loans are long-established financial products that, used properly, can give you a cash injection when you need it.
Loans can be used for many purposes, and secured car loans, home improvement loans, wedding loans, debt consolidation loans and even secured business loans are available.
Bad debt loans are also typically available to people who have experienced financial difficulty in the past.
What you need to know when applying
As part of your loan application, you will need to provide certain key information to the potential provider.
Drawing upon their professional experience and expertise, they will use this information to try and help you establish a figure that you will be able to borrow and comfortably repay.
That is why it is exceptionally important that you make open and honest declarations as part of your application, particularly relating to your employment and overall financial status.
Any application will typically be subject to a credit history check.
One of the advantages of secured loans is that, by offering one of your assets as security, you are indicating something of your overall financial position to the potential provider. This means that they may be less concerned about some forms of credit history problems than would be the case if you were seeking an unsecured loan.