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Secured loans can seem intimidating at first. Knowing you have to pay back money to someone can make anyone feel uneasy. But sometimes, you have no choice.
Before you acquire a secured loan, it’s a good idea to know more about them. That way, you can try and find some of the best secured loans out there.
A secured loan is when you agree to use an asset you own as a form of collateral. The most common asset is usually your home.
What does that mean?
It just means that if you can’t make your payments on time, the bank or lender you are using can use your home or some other asset as a way to get back the money you owe them. No one wants to lose their home, so the chances of someone missing a payment is lower when their house is at risk.
Not every secured loan is the same, however as there are different types of secured loans.
Types of secured loans
While there are a lot, these are the three most common secured loans you will most likely run into.
Vehicle/Car loans: Your car is used as collateral and other vehicles such as a boat or a motorcycle can be used as a form of collateral. If you fail to make the payments on time, your car will be repossessed.
Mortgage loans: As mentioned earlier, this is one of the most common types of secured loans. Your home is used as collateral. Missing payments can make you go into foreclosure.
Secured credit cards: When you compare secure loans, this one is different because it requires a cash deposit. The deposit is the collateral so if you were to miss any payments, it would be used to pay what you owe.
knowing you can lose an asset of yours can make you think that secured loans aren’t that great. But that’s not true. There are multiple reasons why you should take out a secured loan such as rebuilding credit history and also having a higher chance of approval since you are using an asset as collateral.
Again, since secured loans are much easier to get approved for, many people have a much better chance of getting accepted and being able to improve their credit score.
Luckily, it’s very easy to find secured loans online. The tricky part is that there are so many lenders and banks online, you may not know who to choose from. The main thing you want to know is what percentage the APR is, and how big of a loan do they offer. Some lenders will offer you up to £5,000 while other places will offer you up to £10,000.
If you are looking for a secured loan it’s best to try and start with a smaller loan. Doing this will mean you won’t have to pay as much back and you will also get in the routine of budgeting properly so you can pay your bills. This is an extremely valuable skill to have as it can make finances much less stressful.