Advantages of Personal Secured Loans
Personal secured loans have a number of advantages over other loans that you can pursue. The biggest advantage is that banks and other lenders will generally be much more flexible with a secured loan. Consider some of the other most important advantages of personal secured loans.
- Lower interest rates. With personal secured loans, borrowers don’t just rely on their credit record and employment situation to get a loan. They include a piece of collateral in the transaction. The collateral, or property, is usually a vehicle, a home or something valuable that the lender will agree to use in the transaction. The reason for the lower interest rate for personal secured loans is that lenders are in a much safer situation. If you pay off the loan, the lender has the amount loaned out plus interest. If you can’t pay off the loan, the lender takes ownership of the collateral. In lending, the safer the transaction, the lower the interest rate. For example: Some lenders specialize in loans to people with bad credit. This carries a much greater risk, but allows the lender to charge more interest and earn a potentially greater reward.
- Credit history not as crucial. While many lenders will check a borrower’s credit score and history for a personal secured loan, a few late payments or other difficulties aren’t nearly as worrisome. As long as there is no question about the value of the collateral, many lenders will not enforce restrictive rules regarding the lowest credit score that can qualify for personal secured loans. Now, if a borrower has a history of collection accounts and a bankruptcy or foreclosure, a lender may want to pass for fear that there may be some hidden issue regarding the true value of the collateral.
- Employment may be optional. In a routine personal loan, lenders want a borrower to have a job and to have held the job for several months at the least. But a lost job could be the reason that triggered the need for a loan, and lenders will be more forgiving if they are enjoying the general comfort of a secured loan.
- Loan values can be higher. Personal loans often have capped limits, which reflect the general risk of handling any kind of personal loan, as opposed to mortgages or refinancing or other loan products that are tied to the value of a piece of property. But personal secured loans are often available for greater amounts. Often, the limit of a personal secured loan is somehow proportional to the value of the property being held as collateral.
- Good credit can increase the amount of secured loans. Some lenders offer to loan even more than the value of a home or piece of property if they are dealing with a borrower with good credit. It isn’t unusual to see loans worth 110 percent or even 125 percent of the value of a piece of property or home. In these cases, the combination of collateral and good credit indicates to the lender that the loan is likely on the up-and-up. Because the lender has the belief that the borrower will pay off the loan in order to avoid losing the property, advantages like lower interest rates or high-value loans are possible.