NEW YORK, NY / ACCESSWIRE / December 18, 2024 /
Using a secured loan could be a smart financial move in certain situations. You might want to use it to consolidate debt, fund a home improvement project, or purchase a new vehicle.
No matter the reason, it's always a good idea to weigh the pros and cons to ensure you're making the best decision for your budget and financial goals.
What is a Secured Loan?
A secured loan is secured by collateral, something valuable you own, like a house or car. The lender has the right to take possession of the collateral if you stop making payments. A secured loan could be risky if you're unsure whether you can pay it back according to the agreed-upon repayment schedule.
Types of Secured Loans
Below are some examples of secured loans:
Secured personal loan: Secured personal loans can be secured with collateral like a car or motorcycle. You can receive a lump sum of money upfront and repay it over time in fixed monthly payments.
Home Equity Loan and Home Equity Line of Credit (HELOC): These options allow you to borrow from the equity in your home, which is your home value minus the balance you owe on your mortgage. If you default on a home equity loan, the lender may foreclose your home.
Pros and Cons of Secured Loans
Here are some pros and cons to consider when applying for a secured loan:
Pros
Secured loans may be easier to qualify for compared to unsecured loans.
You may be able to lock in a low interest rate.
Secured loans typically come with higher borrowing limits.
Cons
The lender can seize your collateral if you fail to pay the loan.
Falling behind on a secured loan can hurt your credit.
The amount of the funds you borrow may depend on the value of the collateral you offer.
You'll need to shop around to find lenders who offer them. The application and funding process will likely take longer as well.
When Does a Secured Loan Make Sense?
In many cases, unsecured loans are the way to go. Here are some scenarios where you might want to take out a secured loan.
You know you can repay the loan: If you have no doubt that you'll be able to repay the money you borrow on time, a secured loan could be a good option. This is particularly true if you qualify for a low-interest rate and favorable repayment terms.
You need to borrow a large amount: Unlike unsecured loans, secured loans generally have higher borrowing limits. If you'd like to cover a large expense, like a home improvement project or debt consolidation, a secured loan might meet your needs.
You don't qualify for other loans: Many lenders offer secured loans to borrowers with varying credit scores. But if you cannot get approved for an unsecured loan, you may qualify for a secured loan depending on the lender's requirements.
The Bottom Line
In most situations, an unsecured loan can allow you to cover your expenses without risking your personal assets. However, secured loans should be on your radar if you're confident you'll repay your loan, need a significant amount of cash, or are having trouble getting approved for unsecured loans. Consider your options and review your financial situation to make the best choice.
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SOURCE: OneMain Financial
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