Borrowed money may be used to fund education, debt consolation, a holiday or home improvements etc. When a consumer decides to take out a personal loan, they will need to weigh up the benefits of a secured loan versus an unsecured loan. In 2003 the amount of consumers opting for a secured loan peaked, with new lending in the region of �7 billion. More recently the secured loan market has dipped. However, presently there is an upward trend in the expectations of the popularity of secured loans. With the many benefits offered by a secured loan it is easy to see why it is such a popular choice for consumers who have an asset of value to place against the loan. These benefits include:
- Repayments are subject to a low interest rate, thus the overall cost of the loan is kept to a minimum; and repayments are easily affordable.
- Repayment terms range from 3 to 25 years.
- The sum borrowed can range from �3,000 up to �75,000 depending on the value of the secured asset and the repayment capability of the borrower.
- Easy accessibility.
An unsecured loan is also a viable option, however typically interest rates will be higher; repayment terms will be shorter; and the maximum sum borrowed will be lower. This is because with a secured loan an asset must be offered by the borrower to guarantee repayment of the loan. Any asset of value may be used as collateral; often this will be a borrower's home, vehicle, stocks or bonds etc. Based on this asset repayment/recovery of the loan is guaranteed. For this reason, the loan provider has limited risk in approving a secured loan and thus is able to offer more favourable features.
A secured loan is often considered an alternative option when a consumer re-mortgages their home. The increases/volatility in the base rate (interest rate set by the Bank of England for lending to other banks) in recent months has had a knock-on effect on the secured loans market. At present the re-mortgage of a home may incur higher interest rates on the borrowing, than with a secured loan. Thus, a secured loan becomes an attractive option. Furthermore, a secured loan is more easily accessed than a re-mortgage plan and can be approved within 15 days of application.
A secured loan is also a wise choice for a consumer with a bad credit history. A 'bad credit secured loan' can be approved providing a bad credit borrower offers an asset to secure the loan. They to, will reap the many benefits offered by a secured loan, including a low interest rate. Conversely, a re-mortgage plan or an unsecured loan will typically incur far higher costs and/or interest rates for a bad credit borrower.
Furthermore, with a secured loan if a borrower can not meet an instalment one month, they can make it up the next month. The lender will not panic as they have the security of an asset, they are confident enough to offer more lenience. To apply for a secured loan a consumer need only input their details into some of the may secured loan websites, this will generate numerous quotes. These competitive quotes can be compared and the best deal can be applied for.
The major concern with a secured loan only arises in the unlikely event that the borrower repeatedly fails to meet repayments of the loan. Typically several months will pass before this becomes an issue. However, once established as a problem the lender will have the power to seize and sell on the secured asset. Thus, a consumer who seeks a secured loan must be certain that they will be able to repay the sum borrowed plus interest.
To conclude, borrowing can be a costly affair. With a secured loan, thanks to low interest rates, these costs are kept to a minimum, even for bad credit consumers. Thus, a secured loan is a viable option for any borrower who has an asset of value to place as collateral.
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