Why enter in a secured loan? Is it really worthwhile?

When you ask for money in a secured loan scheme, you will be putting your properties or goods (for example, a car, or your home) as a guarantee in case you are not able to afford the repay of the money you have borrowed. That is why the debt is called a secured debt, in which the creditor –the one who lends the money-, assures himself from the loan by taking a property or good from the borrower. This property is called a collateral of the loan. If at any time the borrower goes on default –i.e when the debtor has not followed the terms of the agreement and cannot afford his legal duties, for example when a scheduled installment has not been paid (always according to the contract signed with the creditor), or when he declares himself in bankruptcy or insolvency. By bankruptcy we mean a legal imposure in which a court has to supervise the one who has gone bankrupt; by insolvency we refer to an impossibility of the debtor to pay the debt. “default” is a more general term, that designs any momento in which a debtor has not paid any of his debts.

So why go into a secured loan, risking your properties, taking into account that the creditor is practically taking no risks, as he has as guarantee your own goods? What will be your advantages as a borrower if at any time the borrower will be able to take your goods and sell them to regain the amount of money he originally lent you? There is one main point: secured debts, as we said, the creditor has the right to retain legally a good from the borrower, as a justifier for the borrower not paying the debt, good that he can then sell to take back the money lent originally. But what about unsecured debts? In this kind of loans, opposite to secured bets, there is no connection between what you owe and a property of yourself put as a guarantee in case you become insolvent or bankrupt at any time. So what happens? The creditor can act against you legally –not against your goods. So in an unsecured debt you are prone to going on trial, at any time you are unable to pay a scheduled installment or satisfying the creditor’s demands. Well, this is actually a very important aspect to take into account –a negative one. But why are unsecured loans so attractive nowadays? Because as debtors are not being lent money at a risk, creditors can offer better conditions than other loans, where you usually have to pay 21 per cent interest per year. Moreover, the one lending the money can also be more flexible with some repaying periods and schedules.

There is a very popular website, uswitch.com, where secured loans are offered and depicted. You can find a general advice: ‘A secured loan is a loan where you will be required to use your property as security against the loan, so the lender is able to balance the risk of lending to you. The amount that can be borrowed differs from lender to lender and your individual circumstances. The amount that can be borrowed, the term available and the Annual Percentage Rate (APR) will depend on:

• the value of your property

• your ability to repay the loan

• your personal circumstances

You need to think very carefully about how you manage a secured loan. If you default on the loan you risk losing your home’. And there’s the edge of the issue. Are these people willing to negotiate or to understand a terrible fact that may has happened to you, unexpectedly? Be prepared for them not to be keen on this. On the one hand, excellent interest rates and much many installments (for instance, moneyback bank offers 10,000 pounds, payable in 60 months (five years), with a yearly interest of 7.6 per cent; Alliance Leicester , for the same amount and installments, offers a yearly interest of 7.7 per cent; whereas M&S, the higher interest, is just 8.9 per cent per year. Another interesting advantage of secured loans is that some of them can be taken to repay in 25 years.

In conclusion, what is best, a secured or an unsecured debt? Is it really worthwhile to enter a secured loan, when you are putting in risk your house, your car, etc? definitely, if you are of the type of people who really are capable of planning thoroughly their movements with money and so, secured loans are an excellent opportunity to ask for money, as interests are very low and facilities for repayment are generally provided. If you are the type of person that usually messes up with things, and that is accustomed to not planning any move, try to simply avoid taking secured loans: it is not the best advice to take in that cases. For secured loans to be really worthwhile, you should be aware of the risks, and be responsible so as not to lose your property.

Obviously, there may be many other aspects to take into consideration, and we are not doing this in this brief article, but we wanted to note the main aspect of the issue, as it has many angles from where to be analyzed. Debts are never a light bag to carry, and we have to be very aware that, if at any time it would be impossible to us to pay for a scheduled payment, our efforts should be focused on taking advantage of money we may have saved. This is not always possible, but it is a very good way: using the money you may have saved, to afford the payment of more money. Be very careful with secured loans, though they are very trustable. It is a very tipic scheme of borrowing money nowadays, and I assume it. It is the place we have, we need to take it, defend it, and promote it.