Loans can sound scary, but they are not something you should be afraid of. If you are sure you need a loan, you need to spend time researching and evaluating your finances. Before you even start to search for a loan you need to be armed with the facts, benefits and consequences. The last thing you want to do is end up with a bad credit score, which can affect many future decisions such as purchasing a home. Fix any problems you may have financially before you go shopping for loans. Once you are ready, you need to make sure you choose the right loan for you.
What is a secured loan?
After asking about Direct Axis loans, Life, Love, Money found out more about common secured loans. For a loan to be ‘secured’, you must agree to lend against something that you own of an appropriate value. Loan providers offer secured loans as it means that if you don’t pay back your loan, they have something that from which they can recuperate the money. As the loan being secured, the lender is likely to offer a lower interest rate. Lower rates are available because there is less risk to their business.
However, if you take a loan out against something you own, and can’t meet the terms of your arrangement, you will find yourself in a sticky situation. These loans can take on several forms.
A logbook loan is a loan that is secured against your car as the collateral damage. Logbook loans are often easy to find, offer fast cash and have higher interest rates. This kind of loan essentially means that the lender owns your vehicle until the loan is complete. The good thing about these loans is that they are readily available, however if you aren’t able to pay back your loan you could lose your car.
If you didn’t know already, a mortgage is a type of secured loan. It’s incredibly common, and you might even have one already. If you are looking to buy a house, then you need to do the proper research before you reach out to mortgage providers. A mortgage is a large loan over a long period. Therefore, you want to make sure that it is financially viable for you. Remember, this is a big commitment. If you have any doubts, speak with your advisor as you don’t want to lose your home.
Another type of loan that uses your home as collateral is a home equity loan. Although they are essentially a second mortgage as it is secured against your home, home equity loans work in a very different manner to mortgages. Equity itself is the difference between how much your home is worth, and how much you owe on your mortgage. When you take out a home equity loan, the money will be paid to you in a lump sum or as a line of credit with monthly payments. Be wary that you can’t increase this amount so you must be sure beforehand. Then, like your mortgage you pay it back over a set amount of time. These types of loans are suitable for big investments (such as re-decoration) for homes that are increasing in value. They are also commonly used for debt-consolidation. Be clear and honest about your situation to make sure it will help rather than hinder you.
Secured loans can be a massive help in many situations throughout life. Don’t be afraid to investigate them thoroughly and ask questions. If a loan isn’t right for you at this time, consider ways in which you can save money before you start to borrow.