A secured loan might seem like a scary option because you can lose your property if you don’t pay, but there are some circumstances when a secured loan is the appropriate choice. With a secured loan, you pledge your property to the lender to ensure your repayment. Unlike an unsecured loan or a credit card, the lender can take your property if you don’t pay.
You Need a Large Amount
Unsecured loans and credit cards usually don’t offer extremely high loan or credit limits. Since there’s nothing securing the debt, the lender is taking a higher risk and the risk is reflected in your borrowing limits.
You’ll notice on many financial information websites, such as Moneysupermarket.com that the limits for secured loans are much higher than the limits for unsecured credit products.
If you need a large loan, you might not have any other option than a secured loan. Make sure you comparison shop first so you lock in the best rate available to you and get the loan amount you need to cover the expenses you’re planning for.
You Want Lower Payments
You’ll pay more in interest with a longer repayment schedule, but secured loans usually have repayment schedules spanning ten years or more. Your monthly payments will be smaller than you would have if you got a short-term, unsecured loan instead.
With credit cards, repayment schedules and amounts vary, depending on the issuer and how much credit you used. You might have an indefinite repayment length on a credit card, as long as your account remains open and in good standing, but you’ll pay for it in interest.
If your credit card issuer decides to close your account, you may be faced with an accelerated repayment of the debt. You need to consider this possibility if you were planning on using a credit card to cover a large expense.
You Need Quick Approval
Since you’re putting up your property on a secured loan, you’ll often have an easier time finding a lender. Unsecured loans and credit cards represent a larger risk for the lender, so lenders often have stricter criteria.
If you don’t have a great credit score or history, you’re more likely to get approval for a secured loan than an unsecured loan or a credit card with a decent limit. You represent less risk to the lender if you’re pledging your property, so the lender applies less stringent credit requirements.
Getting a secured loan will take some time, as the lender will evaluate your property and still require documentation of your income and other items necessary for most credit products. Have all your paperwork in order before you apply to speed up the process.