For most people, a secured loan is the last option. Why would one risk losing their home or car for missing out on loan repayments? However, not all people get unsecured loans for a variety of reasons; they have no option but to choose a secured loan. In such cases, lenders give you the loan based on the collateral you provide, which is called a lien. The lenders may seize and even sell your property when you fail to meet the payment commitments. Two of the most common secured loans include mortgages and vehicle loans.
Here are a few things you should consider when decide to go in for a secured loan:
- Due to the higher amounts being borrowed, secured loans are usually repayable over a long period of up to 10 years or more.
- One of the advantages of a secured loan is its quick disbursal. In most cases, loans are sanctioned within a day or two.
- In case you already have an unsecured loan, do not transfer it to a secured loan—even if you were to gain an additional funding by the way.
- Some lenders may even levy penalties for early payoffs. If early payoffs are possible with your income, make sure that the fine print says it all.
- Since your collateral is at risk when you take a secured loan, you should go through the terms of seizure. Some lenders can repossess your property without even providing advance notice. It is important that you go through the seizure notification procedure and compare it with other lenders.
- The lender may sell or auction your property to pay off your debt, and may give you the excess amount if any. However, this is not always the case. At times when the sale proceeds were lower than the loan, the lender may file suit against you to collect the differential value.
- Often lenders charge high interest rates for secured loans, especially when the borrower has a poor credit history. On the other hand, home equity loans may have lower interest rates.
It is always best to get the help of an independent financial advisor and discuss your options before deciding to apply for a secured loan. If you intend to apply for a secured loan, get in touch with us .
