A secured loan is one of the most popular ways to borrow money. The word "secured" means that the loan is backed by some property, like a house. If you don't pay back the loan, the lender can take this security. Any property can be used to get a loan, but houses and cars are the most common types for personal loans. Most of the loans being made in Britain right now will be secured loans.
It looks like consumer loans will be a little less in 2005 than they were in 2004. Still, there is a lot of borrowing going on, but it looks like people are trying to keep it in check. The vast majority of loans are mortgage loans. There are also a lot of home equity loans out there. The difference between a mortgage and a home equity loan is that a mortgage is used to buy a house and is also secured by the house. When you already own a house and need money for something else, you can get a home equity loan. The loan is still backed by your house.
There are a lot of reasons why people like secured loans so much. There are big risks with secured loans, but there are also a lot of good things about them.
What are the benefits of a secured loan?
- The terms will be easier than when you borrow money without security.
- The amount you borrow can be a lot more.
- The rate of interest will go down a lot.
- The loan is easier to get approved for.
The biggest risk, though, is that if you don't make payments on time, the security, which is usually your home, is at risk. The bank can sell your house to get the money they loaned you back. This is a big risk that needs to be taken very seriously. Losing one's home is the worst thing that can happen financially. Even though there are protections and your home won't be taken without a court order, repossession is the end of the line. In the same way, auto loans are usually backed by the car you want to buy. If you don't pay your car payments, the car, which may be the only way you can get around, will be taken away from you. If you don't pay back a loan, there are also some long-term effects.
When you borrow with collateral, you can get more credit at better rates, but in the end, it all comes down to your credit report. The more trustworthy you have been in the past and the better your credit score, the more likely banks and other lenders will be to lend you money. If your credit score isn't great, you might want to borrow a small amount and pay it back on time to improve it. This will put you in a better position when you want to buy something really big, like a house.
