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Collateral Loans

Personal Loans
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If building a solid credit history is your goal, using collateral loans may be your best option. In fact, when you have no credit history or bad credit, the use of secured loans can be the only option lenders make available to you. As long as you follow a few simple guidelines, you can use these personal loans as stepping-stones to your financial goals.

Determine your credit needs

Sometimes, it’s easy to overlook collateral loans as viable borrowing options. When you’re buying a car or a house, this is the first type of loan to cross most people’s minds. If your goal is simply to obtain a line of credit or small personal loan, you may not think of this option.

In most cases, lenders have secured lending options for all the various loans they offer. Because collateral loans often carry lower interest rates than unsecured alternatives, you have the potential to save money by offering your lender something of value in return.

Evaluate your collateral

Although people like to believe their belongings carry significant value, now is the time to view your things with a critical eye. Decide what object of value you wish to use as collateral. Vehicles you own outright, equity in your home and certificates of deposit are standard selections. Artwork, jewelry, investment certificates and rare coins can also secure collateral loans. Keep in mind that your bank may not accept these specialty items as collateral, so you may need to do additional research on where you can go.

Borrow what you need

At any interest rate, the lender makes more money when you borrow higher amounts. Know how much money you need from the transaction before you apply for any collateral loans. If the lender offers you more than you need, turn it down for the sake of your budget.

Of course, there are situations when you have a genuine need for additional funds. In that case, it’s ok to increase your loan amount. Be sure you take time to consider your decision; however, because borrowing too much from collateral loans is a slippery slope. Higher loan amounts mean higher monthly payments. Once you offer something as collateral, you have the potential to lose it if you cannot afford your payments. As long as you won’t overextend yourself, it’s safe to raise your loan amount.

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