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Secured personal loan is actually an ancient form of financing and it dated back before the appearance of modern financial institutions and banks. During those eras, borrowers are allowed to draw specific funds only if they have the proper assets. Current lending policy is also based on this concept and due to its effectiveness, secured personal loans will see no decline. In fact, most borrowers choose the secured type of financing, because it is faster to obtain the loan and the overall interest rate is usually lower, compared to unsecured personal loans. In this case, borrowers often need to choose between various potential lenders; before they are able to get proper financing. However, there are some consequences of using secured personal loans, such as the apprehension that we may lose our home if we fail to repossess it after taking a refinancing.
Unsecured personal loans or personal loans without collateral shouldn’t have a direct effect on our asset. However, this is compensated by stricter terms and much higher interest rate. It is obvious that if we want less strict terms and lower interest rates, then we should choose secured personal loans. It means that any loan with collaterals should be easy to repay due to much lower costs. But, it is important to know that some unscrupulous lenders could intentionally encourage consumers to choose secured loans, due to some hidden intentions. There are some degrees of risks associated with secured personal loans. It is important to be aware that secured loans can eventually become bad debt and this will give lenders an opportunity to acquire collaterals.
Nevertheless, we shouldn’t have misplaced fears associated with secured personal loans. There are obvious benefits that can help us financially, if we choose and manage secured loans properly. The asset that we use as collateral should be stable enough so that it will be seen as having higher values. Lenders have different degree of leniency and this could be associated with reductions in risks. In secured personal loans, interest rate should be considered as the lowest. Typically, APR ranges between 6 percent and 25 percent. The collateral pledged towards secure loans should allow us to determine the proper APR. Real estate property and home should have the lowest APR. Title to motor vehicles should also allow us get reasonable interest rates.
Because house is immobile and progressively increases in value, it is one of the best collaterals for secured personal loans. Lenders will send an appraiser to define the value of our house, so they can determine the maximum amount that can be lent against it. In general, the maximum value that can be borrowed is always less than the equity of our house. We should have a good deal if it is about 90 percent of the maximum value of our house. The terms of repayment should be flexible enough to suit us and there are various options that we need to consider.