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Understanding The Pros And Cons Of Secured Loans
- Understanding The Pros And Cons Of Secured Loans
Secured loans – what are they? Well, this article shows you and also goes through their pros and cons.
The Pros
Below are three of the primary reasons why proponents of secured loans feel that they are the best option when borrowing money.
- You can qualify for a loan even with blemishes on your credit report.
Most lenders aren’t willing to provide personal loans to borrowers who don’t have perfect credit.
With secured loans, however, the credit requirements are usually a bit more relaxed since the loan itself is secured by real property. As a result, you may be able to qualify for one of these loans even if you don’t have perfect credit.
Keep in mind, however, that the lower your credit score is, the more interest you will have to pay on your loan. This can wind up costing you a lot of money over time. Additionally, if your credit score is extremely low, you may still struggle to qualify for one of these loans.
- Interest rates are generally lower than unsecured loans.
For the most part, secured loans offer lower interest rates than unsecured loans. Interest rates can change over time. As a general rule of thumb, however, you can expect to pay a lot less interest on a secured loan or on Money Expert guarantor loans than you would on a personal loan or a payday loan.
- You have more time to pay back the loan.
Most secured loans are paid back over a period of at least five to ten years. This can help keep your monthly payments far more affordable. Remember, however, that the longer it takes you to pay off the loan, the more interest you will wind up paying in the process.
The Cons
Despite all of the advantages of secured loans, there are some major drawbacks as well including the following.
- Your home is at risk.
When you use your home to secure a loan, you are putting it at risk. If something unexpected happens and you are unable to make your payments, you could wind up losing your house.
Because of that, it is always a better option to go for an unsecured loan if you can qualify. Although lenders can still take your house away if you default on your loan, the process is a lot more difficult and doesn’t happen nearly as often as it does with secured loans.
- A never-ending cycle of debt.
One of the biggest mistakes that people make is taking out a secured loan to consolidate their debt. In essence, they borrow a large sum of money to pay off all of their existing debt, consolidating all of their current payments into a single loan. Although this may seem convenient, it does have its drawbacks.
When you consolidate your debt, your existing credit cards and lines of credit will all be paid off. As a result, you may find yourself tempted to charge new items with your old cards. This can wind up compounding the problem by adding to your debt rather than helping you find relief.
If you need help managing your debt, there are a lot of nonprofit organizations out there that can help. Working with one of these organizations, you may be able to reduce your interest rates or negotiate new payment terms with some of your creditors, helping to ease the burden of your debt.
- The interest rate on secured loans can change over time.
Oftentimes, secured loans have variable interest rates that fluctuate over time. This can significantly impact your monthly payments. Personal loans, on the other hand, are far more likely to have fixed interest rates.