Secured Loans - Pros & Cons

It is a known fact that for people who are capable and willing to pledge collateral – homeowners and property owners – secured loans is the best option, as it ensures maximum loan benefits. As a result, more and more people are opting for secured credit even for small monetary requirements. The cons of availing secured loans are:

Credit for few: Secured loans can only be availed by those who are capable and willing to pledge collateral against the loan amount, i.e., homeowners and property owners. Others miss out on the advantages of secured deals. Slow procedure and additional formalities: The lengthy property evaluation procedure makes the overall loan approval process very slow and adds to the paperwork. Collateral repossession: When a borrower defaults to payback repeatedly or does not payback at all then the lender can seize the pledged collateral to recover his money.

Please note: Borrowers can easily do away with the risk factors by honouring the contract, i.e., by paying their EMI’s (Equal Monthly Instalments = Principle + Interest) regularly.

Secured loans may sound risky for the borrowers. But, they are very advantageous too… The presence of collateral makes them the most profitable transactions for all parties involved. To the lenders it guarantees repayment, giving them the confidence to part with their money, whereas, to the borrowers it guarantees maximum loan benefits, giving them the incentive to risk their valuable asset.

The pros of availing secured loans are:

Quick attention: Lenders prefer secured deals because their investment remains protected. Also, as the borrowers share the risks, they are more likely to honour the contract. High credit range and low APR: Secured loans are suitable for big monetary requirements, as most lenders offer credit up to £250,000 (subject to available equity) and interest rate as low as 6.7% . Multiple rate plans and repayment methods: As the repayment term is usually long, borrowers can choose the most favourable rate plan (fixed/variable/discounted/capped) and payback method (capital/interest/partly interest and partly capital). Negotiable loan clauses: As lenders are usually open to discussions, borrowers can negotiate for flexible loan terms and conditions like deferred payment up to 6 months, repayment holiday and accelerated repayment.

Please note: To avail the benefits of secured loans, the applicant must be a UK homeowner or property owner and over 18 years of age. Also, the approval of the loan amount is subject to the lender’s credit policy, and in proportion to the borrower’s credit history, debt to income ratio (DTI = Debts/Income), employment status and the value of the pledged collateral.

The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done her masters in Business Administration and is currently assisting Chance4finance as a finance specialist. To find a personal loans, that best suits your needs, visit chance4finance UK.

This entry was posted on Thursday, April 26th, 2007 and is filed under Secured Loans. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
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How Credit Scores Affect Mortgage Applications

With a good credit score an applicant will receive prompt response from many lenders, all of them offering low interest rates and low down payment options. The loan amount offered also may be high. On the contrary a low credit score would result in a lot of rejection from various mortgage financers. Because creditors wouldn’t come forward easily to give credit to individuals that have a history of difficulty in repaying existing loans. After all, creditors take risk when they finance mortgages against the credit history of a debtor. Naturally, they will wish to remain on the safe side and pick up less risky ones that have good credit histories. A good credit score means less chance of missing on payments and therefore less risky.

But there are some real risk takers that will come forward to finance mortgages for individuals with bad credit scores. They would charge high down payments and always high interest rates though. They may also fix additional charges for every little paper work and may charge high closing rates. The loan amount offered will also be considerably less. The individual with poor credit scores will not have much choice but to accept the terms and conditions as there are no other alternatives. This is a tight situation and to avoid this you must have a good credit score.

People with bad credit may fall in to the trap of ’secured loans’. Secured loans are the ones where the loan applicant offers an asset as collateral security. The lender becomes secure about the repayment of the loan and not the borrower. Securing a loan with bad credit score becomes easy only when the applicant is willing to offer some asset as collateral security. This again is a very dangerous situation where an individual runs the risk of losing his entire collateral asset in case of failing to pay the loan installments in time. An individual should always avoid such type of a loan.

Resort properties normally require large amounts of finance which a person with bad credit may find it difficult to obtain. So it is always advisable to keep your credit score high. Incase the credit score becomes low due to unavoidable financial reasons it can be improved upon. There is no need to lose hope simply because a person has a low credit score. If the property that he intends to buy has good equity he should go out and try to obtain finances for it. There are many sub prime lenders willing to offer their services.

For a review of your credit report as it relates to a mortgage loan and a consultation on the best loans available to you, give us a confidential, no obligation and no cost call.