How do secured personal loans work?
Most homeowners can guarantee their loan. What is the advantage? Secured loans allow you to earn lower interest rates and borrow more money. Our partners at Fairstone Financial helped us answer some common questions about secured personal loans and how they work.
What is a secured personal loan?
A secured personal loan is a loan that is backed by an asset. Normally, lenders ask you to secure the loan with your house. However, some secured loans can be secured by something other than a home, such as a vehicle. By guaranteeing your loan, the lender is certain that you will repay the amount borrowed and make your payments on time. This gives you lower interest rates and may qualify for a higher amount.
You can use a secured personal loan to consolidate debts , cover unforeseen expenses , cover larger expenses, but planned as repairs and more.
What is the difference between a secured loan and an unsecured loan?
To obtain an unsecured loan, you do not have to own. The loan is secured by a signed contract that indicates that you agree to repay the amount borrowed. Unsecured loans have higher interest rates and a lower maximum loan amount. However, the application process for an unsecured loan is faster because it requires less paperwork.
To learn more, read this detailed article that explains the difference between a secured loan and an unsecured loan .
How do secured personal loans work?
To secure a loan, you must have a lien on your asset (like your house). The privilege is a right that the law recognizes to the lender to guarantee the repayment of a loan. When applying for a secured loan, you will need to complete documents that will allow the lender to become a lien holder on the asset. If you default (you do not pay back your loan), the lien holder could in principle become the owner of the asset. The most common form of loan secured by an asset is a mortgage.
The process of applying for a secured loan may take longer than an unsecured loan, but the advantage is that you will get a lower interest rate and be able to borrow more money. Once your secured loan is repaid, the lien is canceled.
In addition to the lien on your property, the secured loan is similar to the unsecured loan. You and your lender will agree on a loan amount, interest rate, term and timing of payments according to your needs. The loan will be repaid by installments or installments over the agreed term of your loan. Part of each payment will be used to pay the interest and another part will be used to repay the balance of the loan. The lower your balance, the more your payments will be used to pay the balance rather than interest.
Is it a good idea to take out a secured personal loan?
It depends on your priorities. If you are a homeowner and do not mind following a longer application process, a secured loan is a great option as you will enjoy a lower interest rate. If you want to get money faster and you do not mind having a higher interest rate, an unsecured loan may be a better option for you. If you are not a homeowner, you are probably not eligible for a secured loan unless the lender allows you to secure your loan with another type of asset. Fortunately, several unsecured loan options are available!
How can I apply for a secured personal loan?
Whether you are interested in a secured loan or an unsecured loan, our partners at Fairstone Financial can help. Start by requesting a no-fee, no-obligation loan. Just enter some information and we’ll tell you how much money you could borrow and the amount of your payments. The process only takes a few minutes.