There are moments in life when our financial situation hits a snag and resort to borrowing from banks and other financial institutions.However, banks, in particular, tend to be very choosy about who they lend money to especially when it concerns secured loans. Here's a guide on how to get around the obstacles involved in seeking credit.
What is a secured loan?
A secured loan is that which the borrower has to surrender a piece of their property to act as security for the sum of money they intend to borrow. The most common form of security is in the form of land titles and motor vehicles logbooks. If the application is successful, the borrower will have to remit monthly payments for the period that is subject to the terms and conditions of the contract.
Credit files assessments
Before banks approve any loan application, they have to thoroughly excavate the applicant's financial history to limit the risk of incurring bad debts.A person's borrowing history is made available through a credit report. The institution will browse through the information on this report, as well as info about your financial status, credit cards and mortgage to establish your credit score. The method of computing credit scores varies from one lender to another with some being more stringent than others.
The credit score mirrors your credit worthiness.Bankruptcy, default and late payment of loan interest can put a dent in your credit ranking thus lowering your chances of acquiring a loan. If you have managed your debt poorly in the past, chances are it will appear on your report and damage your score.
Why opt for a secured loan?
This type of credit is advantageous because it allows you to borrow more money, at times exceeding £ 250,000. The repayment period for this option tends to be longer, going up to 25 years. The icing on the cake is that even if a borrower has a poor credit score, they can use security as a negotiating tool to obtain funding. If you lost your job or have encountered financial issues in the past, then secured loans are your best option.Funding can be used for any purpose as long as it bodes well with the law.
Understanding interest rates
So now that your application has gone through, are you comfortable with the interest rates on offer by the lender? Interest represents a significant part of the cost of borrowing. It is worth knowing the financial implications of high-interest rates. Note that the prices will differ depending on your financial profile. The attractive low rates you come across on advertisements apply to a small chunk of borrowers.
Banks are usually wary of extending funds to people who have no record of borrowing in the past. Ascertaining the creditworthiness of first-time lenders is difficult. Lenders also tend to steer clear of people with low credit scores.However, mainstream banks, in turn, respond by offering this unique group of individuals loans at high-interest rates to counter the high risk.
What you need to know before you commit
It is crucial that you be aware of catches of secured loans before you sign that contract. Remember to play by the rules or risk being on the wrong end of the knife.Understand that defaulting payment will result in the lender filing a case in court against you where you run the risk of losing your security if found at fault. If your home or car gets repossessed and auctioned, the institution will get back its funding, and you will get what's left, if any.
Secondly, carefully examine the interest rates the bank is offering you. Only commit if you are confident you can meet the debt servicing terms with ease. If the rate is variable, you are likely to experience spikes during times of economic recession so make sure you can afford it. If things get rough and you have trouble raising the monthly premium, you can negotiate with your banker to lower the amount and lengthen the repayment duration. However, you are going to compensate for this provision by paying more money.
Find the best deal
When it comes to finance, it helps to make smart decisions. Compare the terms and charges of different providers. Finally, ensure that the banker you are dealing with is regulated by the Financial Conduct Authority.