Did you know that the average American spends around $60,000 each year?
This includes necessities such as food and housing, as well as things like entertainment and miscellaneous spending. While it’s important to stick to living within your means, sometimes an emergency can occur in which you need to spend more than you ever anticipated. In this situation, you should consider the possibility of taking out one or more secured personal loans.
Are you wondering if this option is something you should take advantage of? Keep reading to learn all about what a secured personal loan is and how it works.
Put in the simplest terms possible, a secured personal loan is something that’s backed by collateral. This gives the lender peace of mind and allows them to give you higher loan amounts since they can always fall back on your collateral if necessary.
The collateral also works as an incentive for the loan recipient. If you don’t pay the loan back on time, then there’s a higher chance of your collateral getting seized by the lender. People are much more responsible when something of value is on the line.
Are you still wondering how it works? Let’s say you fall behind on your month-to-month payments. In this scenario, your personal lender has the right to put a lien on whatever collateral you agreed to in the lending contract.
If you’ve never heard of the word “lien” before, then it’s enough to know that it’s a term that means the lender has a legal claim on the borrower’s collateral. Once the lien is activated, it’ll remain so until you’ve paid the loan off in full.
In the event of a loan default, then the lender will take possession of your on-lien assets. Once they have it, it’s in their right to sell the collateral as a way of recouping their losses on the unpaid loan amount.
If you think this is a fair agreement, then it’s worth considering the various personal loan options available. Some people are too young or inexperienced in life to have an established line of credit. Anyone with low or non-existent credit can try getting a secured personal loan in the form of a secured credit card.
Instead of using an asset for collateral, you’ll be required to deposit a certain amount of money in the credit card’s associated account. After you receive the loan, it’ll be up to you to ensure that each monthly payment is covered on time.
If you get behind on payments or stop paying altogether, then your loan provider can take out the money you put in the account at the beginning of the loan agreement and put that toward what’s owed.
For someone who has gotten further in life, then you have the option of taking out what’s known as a vehicle loan. A vehicle could be anything from a car or motorcycle to a boat or even a private airplane. This kind of collateral will work like any other and can become the lender’s property if you fail to pay back your loan.
The third type of secured personal loan is a mortgage loan. This is considered one of the most secure types of loans because homes are often worth quite a bit. You should never put if home up as collateral if you don’t think it’s worth the risk.
Secured loans are helpful but you shouldn’t agree to one without taking the proper amount of time to consider all the factors. For instance, do you have an accurate appraisal of the asset you plan on using for collateral? It could be that the collateral’s worth is way too much compared to the worth of the loan.
The last thing you’d want is to feel like you’re getting taken advantage of. You could try getting an unsecured loan but the amount you can ask for will end up being much more limited. Plus, there are still consequences to defaulting on the loan, such as a nosedive in your credit score after you’ve been reported to a collections agency.
With terrible credit, it’ll be much more difficult if not impossible to do important things in life like buying a car, a home, or getting another loan out for a different emergency.
Since unsecured loans have more risks, it’s also much more difficult to qualify for one in the first place. The interest rates on this option are also higher more often than not because of the absence of collateral.
While loan providers are quite careful about who they lend money to, you should also be careful about what lender you decide to work with. For starters, it’s always a good idea to compare interest rates from the best providers. Don’t forget to ask about any possible hidden fees that could make or break a potential deal.
You should also spend some time researching the loan provider and seeing what their past clients have said about the business. The last thing you’d want to do is get involved with a lender that’s not reputable or even breaks the law in various ways.
Now that you’ve learned what a secured personal loan is, you can decide if it’s an option that fits your needs. You should recommend it to your friends and family members who are in need of emergency money, too.
Fast Loan Direct is your quickest and most reliable source for personal loans. We offer loan increments of $500, $1,000, or $5,000. You can also ask for a custom loan amount of up to $35,000.
To see if you qualify, feel free to fill out the form here. We’re dedicated to making our process easy so don’t hesitate to contact us.