A secured loan is a loan where you provide collateral as a guarantee. The collateral could be your home, savings account or a car or bike. These are also called Title loans. The collateral lowers the bank’s risk. In return, you get a lower interest rate and also a higher chance of approval.
Secured loans are generally availed when someone is unable to get an unsecured loan with just their personal credit score, without providing collateral.
Benefits of a Secured Loan
Higher chance of approval
Banks are a lot more willing to lend to you when you are able to offer collateral. Since they can always sell your collateral asset and recover funds if you fail to pay back the loan, approval rates are much higher. There is a very good chance of being approved for secured debt even if you have a poor credit score, as long as your collateral has good market value.
Lower interest rates
Once again, since the collateral you offer lowers your bank’s risk, they reward you by giving you a loan with lower interest rates. For example, if you seek out a $1,000 unsecured loan with a credit score of 650, you might have to pay 30% interest. But, if you offer collateral in the form of a house, car or bike, you can get the same $1,000 loan at just 15% interest.
Helps you rebuild credit
If you have a poor or bad credit score, the only way to rebuild it is to take on new credit and pay it off according to schedule. A secured loan will allow you to do just that. Timely repayment of a secured loan will greatly increase your credit score with time.
This will eventually give you access to unsecured loans and also lower interest rates in the future.
Risks of a Secured Loan
You may lose property you offered as collateral
The biggest risk with availing secured debt is that you can possibly end up losing your home, car or bike when you are unable to pay back your loan, for whatever reason. It can be very tough when you have to give away your car to the bank, just because you can’t pay off a $1,000 loan when your car is easily worth $5,000 or more.
When should you take a secured loan?
You must only take a secured loan when you are absolutely certain that you can pay off the loan as per schedule. In other words, ensure that your income is going to be very consistent and also more than enough to comfortably pay off the secured loan installment until you are able to close the loan.
Example of a Secured Loan
You have a car worth $5,000. You approach a leading Title Loan company like Bonanza Quick Loans that has awarded more than $3 Million in Title loans. You seek out a $1,000 secured loan, offering your car as collateral. Bonanza Quick Loans will process your car’s Title, your ID proof and your proof of residence in the USA and will quickly issue your $1,000 loan, giving you up to 2 years to pay back this loan. The whole process will take just 15 minutes and you can have the cash in your hand on the same day. To get a Title loan from Bonanza Quick Loans, apply online here.