When you go to take out a loan, there are many different factors to consider. You need to shop around and see which lender is right for you. Look into the interest rate on offer, fees they charge and whether they offer secured finance.
We are going to take a look at what is secured finance and whether it is the best option for your circumstances.
Taking Out A Loan
The first thing you need to be aware of when it comes to taking out a loan is your credit score. Lenders use this score to determine whether or not they will lend you money. This score can also affect the type of loan you can take and the amount you can borrow. This score is determined by a number of factors, including:
- The amount you have borrowed
- Number of credit applications made
- Whether you pay on time
If you have a bad credit score, you will find yourself more restricted in the type of loans you can take out. You will likely find yourself with a higher interest rate.
Next, you need to consider whether you are wanting to take out a secured or unsecured loan.
Which One is Right For Me?
If you are looking at taking out a loan, you need to look at what is secured finance and consider if it is the right option for you.
Taking out a secured loan will save you in the long run. You will have more options to shop around for the best interest rate on offer and take on a much lower interest rate for your repayments. While an unsecured loan means a lot less risk for you, it will have you paying more.
It will also give you access to more money for those bigger purchases, such as a house or a car.
Perhaps you are in a position where you are unable to pay back your secured loan? There are routes you can take before having the asset taken. You can look into debt consolidation or get professional help with renegotiating the terms of your repayment. Debt Negotiation is a great option. We offer this service, so get in touch and discuss your situation with us! Every situation is different, so it will be a matter of looking into the options that are available to you.
What is Secured Finance?
A secured loan is a loan that is guaranteed by an asset, such as a car or your home. The lender uses this asset as security. If you don’t meet your repayments, the lender has the right to take possession of this asset to cover the cost of the loan.
Mortgages and auto loans are two common types of secured debt. For a mortgage, the property is often used to back the repayment terms. Until it is paid in full, the lender maintains a financial interest in the property. If you fail to repay the loan, the property can be seized and sold to cover the loss. Typically, when it comes to a car loan, if you are unable to repay on time then the lender takes ownership of the car.
Often, the lender will require you to take out a certain level of insurance on your asset, to ensure it’s safety.
When it comes to secured finance, the risk to the lender is low. As the borrower, you have much more to lose if you default on your payments. For this reason, this type of loan is much easier to take out.
On top of this, the interest rates tend to be lower on this type of loan. Once again, as there is minimal risk to the lender.
How is Secured Finance different to Unsecured Finance?
In contrast, an unsecured loan is one where you don’t offer up any assets. The interest rate on this type of loan tends to be higher than a secured one, as the lender is taking a bigger risk.
This type of loan is generally very dependent on your credit score. If you have a poor credit score, it is unlikely a lender will take a chance on you with an unsecured loan. The risk to the lender is much higher with this type of debt, which is why the interest rate also tends to be much higher.
The Help You Need
If you are looking to get your credit score back on track so you can take out a loan on your terms, chat to the team at Debt Consolidation. We can give you the best financial advice for your next loan and discuss your options.