Secured Personal Loans
05/12/10
Secured personal loans are financial instruments that enable borrowers to obtain funds for their requirements. This type of loan makes it necessary for borrowers to offer collateral to cover for the lender’s risk. In case of default of payment by the borrower, the lender can foreclose on the collateral and recover his due. Even though secured personal loans require collateral to protect the lender’s interest, they carry some additional advantages over other types of loans. Secured personal loans carry low interest rates than credit cards and can be paid over longer periods of time.
Secured personal loans can be obtained from banks, specialized financial institutions and lenders. In order to be eligible to obtain secured personal loan, the borrower has to present proof of his monthly income and an asset of substantial value as collateral.
Loan obtained using a credit card attracts very high interest rate. With secured personal loans, the rate of interest is bound to be much lower. As every additional point of percentage increases the cost of the borrowing, wisdom demands that the borrower should keep his liability as low as possible.
One of the most common types of secured personal loans is an auto loan, which involves the borrower pledging his car’s title to the lender during the period of loan. Besides, items such as jewelry, furniture, works of art and household items can be used as collateral to obtain secured personal loans.
The difference between the interest rates of secured personal loans and unsecured personal loans is quite huge. In cases where the security is valuable and the amount of loan asked for is not high, some financial firms offer loans for as low as 1% interest rate. Lenders compete to offer secured personal loans as they are assured of recovery even in case of default of payment by the borrower. Borrowers who intend to obtain secured personal loans can negotiate for a low interest rate. Since they offer collateral for the personal loan, they can demand better terms from the lender. It is essential for the borrower to be clear about the terms of loan before signing the collateral documents.
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