About Secured Personal Loans

Banks and financial institutions offer secured personal loans, and borrowers can use the money for any purpose. This may include paying off unnecessary debts, starting a new business, paying for college tuition or home improvement projects. Although secured personal loans are readily available, lenders have specific loan guidelines. Several factors impact a borrower's ability to qualify for such loans. Moreover, a borrower's credit history impacts the interest rate. However, once a person meets the lender's requirement, he can access the funds within one to two business days.

Types

There are two types of secured personal loans. Borrowers can apply for a fixed rate personal loan. Thus, a borrower's rate and monthly payments remain the same for the life of the loan. Predictable payments give borrowers peace of mind. However, borrowers can also select a variable or adjustable rate secured personal loan. Although these loans feature low initial rates, rate adjustments can occur monthly or annually. An interest rate increase will increase monthly payments.

Considerations

To qualify for secured personal loans, borrowers need collateral. Collateral is essentially security, or a piece of property that equals the loan amount in value. Because these loans require collateral, they're easier to obtain than unsecured personal loans, which generally require an excellent credit history and high income. Collateral may include a vehicle title, electronics, jewelry, stocks, bonds and other savings accounts.

Misconceptions

Because secured personal loans are easier to obtain than unsecured personal loans, some borrowers mistakenly underestimate the loan requirements. A person doesn't need excellent credit to qualify for such loans. Still, lenders closely evaluate every application and assess whether a person is a good candidate for a loan. They'll take into account a borrower's credit history, payment history, income and current debts.

Benefits

Secured personal loans are beneficial because they make it possible for many people to acquire quick cash. The average person cannot obtain an unsecured personal loan. Additionally, few people have a substantial savings account to meet emergency expenses. When an unexpected or costly expense arises, they are compelled to rely on credit cards or borrow money. Persons who don't want to use high interest credit cards or burden family and friends can apply for a secured personal loan, provide collateral and receive the necessary funds.

Warning

Every person who applies for a secured personal loan ought to know the risks involved. Because the collateral secures the loan, lenders can claim the property if a borrower defaults on payments. This is dangerous, especially since some borrowers use a vehicle title as collateral. Once a lender seizes a borrower's personal property,he'll sell the property in an attempt to recoup his loss. Unfortunately, if the property sells for less than the loan balance, borrowers are obligated to pay the difference.