Why Secured Loans are the Best Choice

By: Melissa Kellett

Most people are afraid of requesting secured loans due to the risk of repossession. However, that risk is overrated and secured loans provide an interesting source of finance with many benefits over unsecured loans. So, if you are a homeowner, there are plenty of reasons why you should consider requesting a secured loan when in need of finance.

With secured loans you reduce the risk involved for the lender in the financial transaction and thus, you will be able to obtain a significantly lower interest rate. With secured loans, you will also get lower monthly payments and more chances of getting approved than if you applied for unsecured loans.

Reducing Risk With Collateral

Given that an asset is guaranteeing the loan repayment program, the applicant's credit score is not such a big deal when it comes to loan approval. The risk that bad credit implies is compensated by the collateral which in turn provides many benefits. The lender's money is protected by the security and thus, the risk of default is reduced.

When a property is used as collateral, the lender knows he will recover his money one way or another. In the event of default, a lender has a legal right to repossess the asset so as to claim his money by selling it. This legal action of repossession reassures the lender as regards to loan repayment and has also positive consequences for the borrower.

Lowering Loan's Interest Rate

As stated above, the risk of the financial transaction is reduced by the lender's possibility of repossessing the collateral. Consequently, since there is a lower risk, the interest rate is reduced too. Secured loans provide probably the lowest interest rate on the loan market and also higher loan amounts than unsecured loans.

The interest rate charged for secured loans is lower than pay day loans, cash advance loans and those of credit cards. It is also lower than the interest rate charged for regular unsecured loans and probably lower than any other financial product with the exception of subsidized student and business loans and specific types of home loans.

Lowering Loan's Monthly Payments

There are mainly two reasons why the monthly payments of secured loans are significantly lower than the installments of equivalent unsecured loans. The monthly payments of secured loans can be lower due to having (as stated above) lower interest rates than unsecured loans. A lower accumulation of interests implies lower monthly payments.

However, loan installments can also be reduced due to longer repayment programs. Secured loans offer significantly longer repayment schedules than unsecured loans. Thus, by dividing the capital in several more parts, the amount of the monthly payments is greatly reduced. Note however, that longer repayment programs do imply higher interest rates.

Guaranteeing Approval

Finally, the lower risk implied in secured loans when comparing them to unsecured loans, also provides less harsh loan requirements. Thus, qualifying for secured loans is a lot easier as there are not so many credit and income requirements. Getting approved for secured loans with bad credit is perfectly feasible and approval comes fast and free from hassles.

Secured Loans
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