A secured loan is a loan that requires some sort of collateral|asset to obtain the loan. Generally speaking an secured loan unlike unsecured loan has a low interest rate. This is because it is not as risky as an unsecured loan. And unlike an unsecured loan, if you should default on your secured loan, the bank can take the collateral that you put up to secure the loan.
Car loans and house loans are common type of secured loan. Many people get secured loans in a effort to rebuild their credit. This is a good idea. However, you should never take your unsecured debt and transfer it to a secured loan. Many people will take out title loans or a second mortgage to pay off their unsecured credit card bills.
The problem is that once you do this, you put your home or car at risk. If you are unable to keep up your payments, they will come after your home or your car. So you could basically end up homeless. That’s why it is never a good idea to use a secured loan to pay off unsecured debt. If you need money urgently for a short period of time. Consider payday loan or any other short term loan and make sure you pay back in full.
As stated before, secured loans are a great way for an individual to rebuild their credit. If you are turned for down an unsecured loan, you will more than likely be offered the option to take out a secured loan. With a secured loan your interest rate are often a lot cheaper than that of an unsecured loan.
This is because in bank’s view secured loans is a lot riskierto the bank. If you should get into payment difficulties they will be able to recoup some of their money by selling your house or car.
Word of caution, when it comes to getting be very careful with what you choose to use as collateral. The most common things are of course homes and cars. However, each bank is different and might not require that you use your home or car. Some banks will use a savings account as security.
Just know that you won’t be able to use that savings until you pay off the loan. The bank will hold on to it until you pay up the entire loan. Once you have met your obligations, the bank will release the money back to you. The advantage of this is that you will still be accruing interest on the money that you have in your savings account. Although the money may not be available to you, you are still making money off of it. Be careful before signing up for any loan alternateoption of cheap loans.