Secured Loans

The Pros Of Secured Loans

Secured loans are loans against which a certain asset of the borrowers is used as collateral against the loan, in the event that the borrower is unable to repay the debt, so as to provided security to the bank or lender. Secured loans are typically used for large purchases, such as buying a house or a car. In the case of purchase of a house, it is called a mortgage, and the house is the asset borrowed against, which can be foreclosed (sold to repay the debt) in the case of bankruptcy or the borrower not being able to repay the loan.
This type of loan is also necessary in case of bad credit, or other outstanding debts which can also increase the interest on the loan. Collateral can include any type of owned property deemed acceptable by the bank or loaner to act as lien (security) for the loan. Sometimes the property is not equal to the value of the loan, and in the case of repossession of the property, the loaner obtains a promissory note from the borrower to repay the rest of the amount. These are called recourse loans, the opposite being a nonrecourse loan, of which nothing more is owed than the property.
There are several advantages to getting secured loans, rather than unsecured loans; of which nothing is offered as collateral. One of these is that because the bank is taking less of a risk by giving you this loan; the interest rates are lower and this type of loan is easier to obtain. Another is that the payback time on the loan is significantly longer; with some banks in the U.K. offering as long as 35 years on mortgages. In contrast, an unsecured loan can have high interest rates, will need to be paid back quickly, and is only applicable for small amounts and personal purchases.
When applying for secured loans, it is helpful to review your financial information. Any bad credit history will make a loan more difficult to obtain, and will increase the interest rate. Also, it is very important to be sure that the loan can be paid on time, as usually banks require monthly installments. Failure to meet the installments could mean foreclosure of your home/sale of your property. Therefore it is wise to make sure you are ready and able to apply for secured loans.
With the current credit crunch due to unscrupulous subprime lending (lending money to risky clients) secured loans are helpful in restoring faith in the banking system, and are useful to the individual who wants to make larger purchases. It goes without saying that you should be careful that your reach does not exceed your grasp, plan carefully and avoid needless hassle.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.