The Unfair Bad Reputation Of Secured Loans
To this day, the process of getting a loan is sometimes a grueling affair. The problem is, people don't want grueling, they want simple, fast and easy. Unfortunately that's not always possible, and was even less possible back then, where every step of the approval process implied a trip to the local bank branch. Secured loans had always been much less of a hassle, but just like the other loans, you had to physically go to the branch.
Since the World Wide Web started gaining in popularity in the mid-90's, the financial industry has been taking advantage of the many opportunities this medium offers, notably in the area of lending. When it comes to secured loans, the process has really been streamlined. In theory, this is the "safest" type of loan a financial institution can give out: the borrower gives a collateral of equal value to the loan that he/she is applying for, and allows that collateral to be taken away if the loan is not paid off. Thus what happens is that information that pertains to your capacity to repay the loan becomes largely irrelevant.
You will be asked to give general information about yourself and what you do for a living. The current international climate also requires that you undergo a security verification, notably for the source of the funds. From then on, what your lender will most care about will be the information that you'll have to provide that prove that the collateral you're offering belongs to you and is actually exists. The last thing a bank wants to do is grant you a loan on the basis of a non-existing collateral, since it's all they're counting on to prevent losses if for some reason you don't pay them off.
Since you use money that you already have when you're getting a secured loan, many people think it's akin to a scam from the part of financial institutions. Their point is that the money is already yours, what's the reasoning behind getting an interest-bearing loan to get the same amount that you have in your savings? They do raise a valid point, but like many things in life, the answer is situation-specific. So when does it make sense?
1. You're saddled with bad credit. This is the lot of tens of millions of people. If such is the case for you, you know that bad credit lenders will be all too happy to lend you money, but only at very high interest rates because they know that your options are somewhat limited besides them. Yet, if you have savings, you can use them to break free from the ranks of people with bad credit by using them to get secured loans that you pay off on time. You get good interest rates thanks to the collateral you provide, and you rebuild your credit history while repaying the loan.
2. Your credit file is thin. Some options (such as PRBC) have been made available to people with thin credit files. The term thin credit file is used to designate people whose credit file is either completely empty of contains very little information. In those situations, credit bureaus are unable to assign them a credit score, and lenders are unwilling to do business with them because they have no credit history. If that's your situation, it could be wise for you to get a secured loan and start paying it off, so that your installment payments start showing up on your credit file to start building that credit history.
3. You have to face urgent expenses. This article might make you think that getting a secured loan always stems from a credit situation but it's not the case. There are times in life where we have to spend large amounts of money on a very short time span. If you have emergency savings or a CD, that might involve making difficult financial decisions. Taking out ALL the money in your emergency savings account is not recommended. Neither is cashing out a CD before term because you'll lose months of interest. Your best alternative: borrow against those funds. Your emergency savings or CD will still be there, you'll get your loan at low rates, and your money will keep earning interest.
As you can see, secured loans do have their uses. They're easy to get. They're equally quick to get disbursed. They carry low interest rates. And they can help improve your financial situation. In the end, they're a very good financial too to have at your disposal.
Since the World Wide Web started gaining in popularity in the mid-90's, the financial industry has been taking advantage of the many opportunities this medium offers, notably in the area of lending. When it comes to secured loans, the process has really been streamlined. In theory, this is the "safest" type of loan a financial institution can give out: the borrower gives a collateral of equal value to the loan that he/she is applying for, and allows that collateral to be taken away if the loan is not paid off. Thus what happens is that information that pertains to your capacity to repay the loan becomes largely irrelevant.
You will be asked to give general information about yourself and what you do for a living. The current international climate also requires that you undergo a security verification, notably for the source of the funds. From then on, what your lender will most care about will be the information that you'll have to provide that prove that the collateral you're offering belongs to you and is actually exists. The last thing a bank wants to do is grant you a loan on the basis of a non-existing collateral, since it's all they're counting on to prevent losses if for some reason you don't pay them off.
Since you use money that you already have when you're getting a secured loan, many people think it's akin to a scam from the part of financial institutions. Their point is that the money is already yours, what's the reasoning behind getting an interest-bearing loan to get the same amount that you have in your savings? They do raise a valid point, but like many things in life, the answer is situation-specific. So when does it make sense?
1. You're saddled with bad credit. This is the lot of tens of millions of people. If such is the case for you, you know that bad credit lenders will be all too happy to lend you money, but only at very high interest rates because they know that your options are somewhat limited besides them. Yet, if you have savings, you can use them to break free from the ranks of people with bad credit by using them to get secured loans that you pay off on time. You get good interest rates thanks to the collateral you provide, and you rebuild your credit history while repaying the loan.
2. Your credit file is thin. Some options (such as PRBC) have been made available to people with thin credit files. The term thin credit file is used to designate people whose credit file is either completely empty of contains very little information. In those situations, credit bureaus are unable to assign them a credit score, and lenders are unwilling to do business with them because they have no credit history. If that's your situation, it could be wise for you to get a secured loan and start paying it off, so that your installment payments start showing up on your credit file to start building that credit history.
3. You have to face urgent expenses. This article might make you think that getting a secured loan always stems from a credit situation but it's not the case. There are times in life where we have to spend large amounts of money on a very short time span. If you have emergency savings or a CD, that might involve making difficult financial decisions. Taking out ALL the money in your emergency savings account is not recommended. Neither is cashing out a CD before term because you'll lose months of interest. Your best alternative: borrow against those funds. Your emergency savings or CD will still be there, you'll get your loan at low rates, and your money will keep earning interest.
As you can see, secured loans do have their uses. They're easy to get. They're equally quick to get disbursed. They carry low interest rates. And they can help improve your financial situation. In the end, they're a very good financial too to have at your disposal.
About the Author:
Jeremy Beckwith is an authority on the cd secured loan. Get valuable financial information by visiting his finance blog.
posted by Debt Consolidation Loan at
5:11 PM
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