A secured loan is different from what is known in the financial world as consumer credit. A secured loan is provided against tangible property as collateral, while unsecured consumer credit (for example, credit cards and personal loans) is lent on the borrower’s promise to repay the money.
Securing a loan against property reduces the risk of the lender. This makes the lender more willing to lend money at lower rates and with better terms.
A second important feature of the secured loan is that it is based on home equity. In other words, the homeowner is using the equity his or her property already holds as a financing instrument. The more equity you have, the more money you will be able to borrow. Equity then becomes almost like a personal line of credit that is always available.
Benefits of Secured Loans
The benefits of a secured loan are many. First, it is one of the easiest forms of consumer financing to obtain – even for consumers with less-than-perfect credit. Offering a home as security goes a long way toward looking beyond bad credit from the lender’s point of view. Combined with this benefit is a second benefit of affordability.
Interest rates on secured loans tend to be significantly lower than unsecured credit. Again, it is the idea of offering your home as security that makes the difference. Lower interest rates make secured loans ideal vehicles for consolidating high interest debt into a single, more affordable payment.
Third, secured loans offer customers a financing method that can help them repair bad credit. It is true that bad credit may result in a slightly higher interest rate, but making payments on time does a lot of good for a poor credit history. Moreover, with very manageable terms, borrowers can take many years to repay a secured loan if necessary. That does even more good for a person’s credit history.
Finally, secured loans provide funding that is nearly limitless in what it can be used for. Let’s say a homeowner wants to increase the resale value of his or her property through home improvements. A secured loan is the perfect financing tool for such renovations, and potentially increase the value of the property.
If you would like to take advantage of your home’s equity, speak to one of our friendly advisers today to find out more.