Secured Loans

Secured Loans

If you want to improve your credit score while protecting the money you have in your savings account, a secured loan might help you accomplish your goals.

A secured loan requires you to provide a personal guarantee, by depositing funds with your lender. You qualify for the loan primarily based on the lender’s ability to keep your money if you stop making payments on the loan.

With a secured loan, the money you borrow is ‘secured’ against something you own, and if you can’t afford to make repayments the lender ultimately has the right to take action to recover the money you owe them, sometimes by taking ownership of the personal property you put up as collateral.

Some secured lending is referred to as ‘homeowner loans’, as the money is usually secured against the borrower’s home.  Some types of secured lending allow people to use other items such as cars –  known as a logbook loan.

Secured loans are typically used to borrow high amounts over a longer repayment period. Depending on the lender, and your own circumstances, this could be from something like $3,000 up to tens of thousands of dollars, or more, and potentially be paid over a period extending several years.

Interest rates for secured loans tend to be lower than for unsecured loans, as there is less risk for the lender because they can ultimately repossess the asset that the loan is secured against if the repayment terms aren’t met.

How does a secured loan work?

As with any loan, your individual circumstances will determine how much you’re able to borrow and for how long. Most lenders will make their decision based on your income, credit score, and the value of the item that you’re putting forward to secure the loan against.

If you are approved, you’ll typically make monthly repayments at either a fixed or variable interest rate. Depending on your agreement, there can be additional fees or charges for early or late repayments, so you should always make sure to familiarize yourself with these beforehand.

When you take out a secured loan, you’ll agree to hand over your personal property in the event you are unable to make the agreed repayments. Because of this it’s important to be confident you can afford to repay the amount over the length of time you agree upon. If you put your house up as collateral and fall behind you could be putting your home at risk of repossession.

Is it good?

If you need to borrow a large amount of money but think your credit history might affect your application, certain kinds of secured borrowing could be an option for you. Because lenders have a right to take control of the personal property you ‘secure’ the loan against if you fall behind on repayments, applicants who have a bad credit rating may still have a good chance of being approved.

Remember, this means if something unexpected happens and you’re unable to keep up with the terms you’ve agreed to, the lender has the right to seize those assets. Some lenders also have extra fees and penalties within their clauses, which can come as a surprise if you’re not careful.

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