Friday, January 18, 2008

What Are Secured Loans

Out of the two broad categories of loan secured loans are the most affordable and ideal loan options. You are guaranteed to get the best and lowest interest rates if you offer the lender a security that will give him confidence in you as a borrower. If we look at banks and other lending institutions that are in the lending business we will come to know that these people have no guarantee that the money they are lending out will be paid back.

The borrowers are not close friends and family members always and lending to strangers and trusting them completely is not something wise businessmen do. These people are not into lending money just for helping the man kind it is a business for them and the lenders have to minimize their risks and safeguard their investment. They minimize risk by keeping collaterals and lien on real estate and other valuables like cars in some instances. Usually the security in the case of real estate loans is called a mortgage and the loan is called a mortgage loan. A loan is secured in several ways lien is one of these ways. Mortgage is a voluntary process of lien or providing security to the lender by pledging the house of the home owner. In this process consent of the home owners is involved. But there is a method of forced lien or mechanics lien which is involuntary and the does not necessarily involves the consent of the home owner. In this particular case the person claiming lien is not the home owner but has done some repair work or investment on the house and on the basis of that he can and will claim lien.

As stated earlier a secured loan offers security and advantages to the lenders but the borrowers are also in advantage if they get a secured loan.

Advantage To Lenders:

When lenders are giving out a huge sum of money as a loan and even if the sum of money is not huge and the loan is a small secured personal loan. There is some risk involved as the lender can completely lose his money t a stranger and may never get it back. That is why lenders charge extremely high interest rates on unsecured loans because the risks are high. Also if the borrower will have something at stake he will probably act in a more responsible manner and will not default on paying back the loan knowing that his property will be sold off and he will be left in an extremely bad situation. This embedded fear in the borrower of losing his property keeps him up to prompt payments and realization that he owes the lender money. That is the reason why some lenders only deal in secure loans and do not take the risk of indulging into unsecured loans. There are several secured loans UK available to interested borrowers. In fact lenders are always more keen to extend a secure loan then an unsecured one. Secured loan UK can be easily accessed over the internet and getting one will be very easy for the borrower. Getting a secure loan is even easier if you have a good credit rating to back your collateral. Secured loans for good credit people are available at even lower rates then secure loans for people with bad credit rating.

The loan is not given equal to the full value of the house that is being kept as collateral or the car or other real estate that you are offering as a security. The loan that is extended to you on the basis of the property you are securing is given on the basis of the equity value of the property or any other collateral item. The best that a person can get is up to 80% of the value of the house or collateral item as secured personal loans or any other loan that the borrower is interested in. In this way the lender can recover the entire amount of money that he has loaned out even after the borrower defaults on the loan after some years and by that time the equity of the house or the collateral item has gone down. In some instances if your credit rating is not good you may only get up to 60% of the value of the house.

Advantage To Borrowers:

If the borrower is extending some guarantee in the form of collateral and getting a secured loan on it then he is giving the lender confidence in his credibility and this confidence that he gives to the lender translates into low rates for the borrower. Secured loans relax the risk factor on the lender and this can give them the margin to extend low interest rates to people with something to offer as collateral. The lenders have a guarantee that their money will be paid back and if it is not paid back then they can always sell off the item secured with them to recover their money. This gives the borrower an edge of getting a cheap secured loan then other unsecured loans. The terms of pay back and check and rules governing the spending of the loaned money are also more relaxed then for people with unsecured loans. Also if the borrower has security collateral to offer it will be extremely easy for him to find a loan and the search has been deemed even easier by the internet. After searching the market properly it is not very hard to find an extremely cheap loan. The best secured loans will be bagged by people with the best credit rating as they will have two advantages up their sleeve. Bad credit secured loans are still better for borrowers then unsecured bad credit loans that have extremely high interest rates and rigid spending checks on the loan money with extremely inflexible pay back terms. As big banks are reluctant in dealing with bad credit people the bad credit secured loans can be taken from the other lending institutions who also offer a relaxed environment for the borrower.

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