Debts are basically categorized into secured debts and unsecured ones. If you can produce security for the loan, you can get secured debts. An overview of the secured debts can be of great help while you decide to borrow. Debts can be mortgage loans, credit card debts, or vehicle loans. Secured debts are those for the approval of which the applicants have to pledge some valuable asset. The offer is quite risky as the property set as collateral for the loan is lost if the borrowers default on the loan. Mortgage loans and vehicle loans come under the category of secured loans.
What are secured loans?
For obtaining mortgage loans, the borrower has to secure the house or any real estate property. While opting for home loan, the borrower submits the house to be purchased as collateral for the loan. As for the lender, there is no risk in offering secured loans as the property is the assurance for recovering the loan amount. If the property set as security for the loan does not raise sufficient funds to meet the outstanding loan amount, the lender is entitled to get a deficiency judgment requiring the borrower to assume responsibility for the remaining loan amount.
How are secured debts advantageous to the lenders and the borrowers?
Secured debts are advantageous to both the lenders and the borrowers. As there is no risk for the money lent, the lenders are eager to offer sanction to secured loans. As for the borrower at yahoo finance , the loan comes with very low interest rate. The terms are also flexible for secured loans. Since the interest rates are lower, the borrower can find the repayments affordable. Due to the risk of losing the property, the borrower tends to be specific about repaying the loan in time. The interest rates on secured loans are determined based on the loan term and the loan amount.
Unsecured loans – Why are the interest rates higher?
If you are not able to produce collateral for the loan, your option can be unsecured loan. The interest rates are higher to minimize the risk in the offer. As there is no collateral for the loan, the lenders cannot recover the loan amount if you default on the loan. However, there is the possibility to take legal action against you, which is not good for your credit ratings. You cannot expect to get flexible terms and reasonable interest rates. The monthly payments are higher for unsecured loans as the interest rates are higher. Personal loans and credit card loans come under the category of unsecured loans. Payday loans and peer to peer lending are short term unsecured loans.
Consolidation loans – Why is it needed?
To meet additional expenses or to make big purchases or for easing out your financial crisis, you might tend to get loans whether secured or unsecured. At some point of time, you might find your finances unmanageable due to which you might think of consolidating your debts. With multiple debts, it might be difficult for you to follow the repayment schedule. Consolidation loans make things easier for you. All the existing debts can be combined into a single loan with interest rate lower than the average rate on the existing loans. Since you need to focus on a single loan repayment, you are free from the stress of following different repayment schedule.
Here again, you can go for secured debt consolidation loan if you can present collateral for the loan. The interest rates might be further decreased. The loan amount is based on the value of the asset, the loan term and the interest rate. When you decide to consolidate the loans, it is necessary to shop around to get access to a reliable lender who can consider your situation and be fair in the terms.