You might be tempted by the prospect of secured and how they require little in the way of finance. You don’t have to have a check done, usually, when applying for these. You may not even have to offer proof of employment, in some cases. Instead, you’ll be putting your vehicle title, house deed or other valuable asset up as collateral.
If you have been turned down before for other lending opportunities, then you know how frustrating the rejection can be. It is people who have experienced that who usually jump at the opportunity to be accepted for a secured . The problem is that they may be risking far too much with this kind of agreemnet.
The Collateral Process
It seems simple enough up front when you look at the terms of a secured loan. You tell the lender how much you want to borrow and the present what you have to offer as collateral. That can be your car, your home, some property you own, some valuable jewellery or something else that holds real worth. Typically, this item is something that is worth more than the total amount of the loan. Its value has to cover the interest rates and fees as well.
If what you are presenting isn’t as valuable as the amount of the loan, then the lender may ask for further collateral or may reduce the amount of the loan. They may also allow you to make up the difference by providing proof of employment or submitting to a credit check.
People who put their assets on the line for these kinds of loans may not be thinking about the worst case scenario, though. They may assume that they will be able to pay the loan back on time and in full and get their title, deed or other asset back with no problem.
What Happens When You Fail to Pay
However, it may not be that simple. Sometimes, things happen that cannot be predicted or planned for, and the borrower may become unable to repay the loan. The lender may offer some slight leeway and allow the borrower more time to pay, but in most cases, they will take possession of the home, vehicle or other asset as soon as payment is not made at the appointed time.
When that happens, the borrower may not be able to get that asset back, even if they repay the loan quickly from then. That’s because the lender is looking to turn a profit as fast as possible. Some lenders will have a grace period, where they hold onto the asset for a short while before trying to sell it, but others will simply try to offload it as quickly as they can.
That means that even if you repay the loan after you lost your asset, you may not be able to retrieve it. It could be lost to you forever or go to another owner, making it very difficult to require. When you lose an asset like your home or vehicle, it can make it difficult to continue working or to live your life the way you used to. That’s going to make it incredibly hard to repay the loan in a timely manner and get your life back on track.
There is incredibly risk involved, and borrower need to be aware of that risk when they apply for a secured loan. There are actually very few instances where such a loan would be a good idea. If you have assets you can do without, then this kind of loan might work for you, but most people don’t have that kind of collateral sitting around. You have to be prepared to lose whatever you place up as collateral when you apply for a secured loan. If you are not, then you should not be applying for that kind of loan in the first place.
Look at your financial options before you agree to something as risky as a secured loan. You may have more choices available to you than you realize. A secured loan should be a last resort, since it can leave you in a bad situation if something goes wrong.