Many residents of the United Kingdom are struggling financially, of this, there is no doubt. Times are hard and it is difficult to make it from one paycheck to the next. There are a number of factors for this but generally, a stagnant economy, driven by the worldwide financial crash of 2008 is the main culprit. The world’s economy is still struggling to right itself after that debacle.
And then, in the middle of 2016, the United Kingdom voted to leave the European Union, another massive setback for the economy. Just look how the pound has devalued against a range of currencies in the few months since the result of the Brexit vote was announced.
Tough economic times mean people who simply are making their way financially, turn to various credit products to try and help them make ends meet. And there are so many credit products to choose from.
For the man in the street, they can be a little confusing. At Daily Loan Tips, we believe that if you want to take out some form of credit product, you should do you research first. So in this article, we will be taking a look at secured loan options. What are they, how do they work and whether you should use them or not?
Secured loans – an easy answer!
In simple terms, a secured credit option is a loan given to the applicant in which they have to put up some asset as a form of collateral before the loan is approved. These assets can be anything that has value, from a vehicle to a house to a piece of jewellery. Often, the value of the collateral is based on how big a loan the applicant would like to secure.
Why is this collateral necessary? Well, the credit provider wants to have something that they can then fall back on should the person forfeit on paying their monthly loan instalments. In other words, the collateral put up can be sold for the credit provider to recoup any loan amount as well as any costs they might have incurred.
The ‘secured’ part of the loan – the collateral or security put up – is there simply to protect the credit provider given the loan to the applicant.
Advantages of secured loans
Surely there are some advantages for people applying for a secured loan? Yes, there are quite a few. Let’s take a closer look.
- Lengthy repayment periods
If you apply for a secured loan, you can be guaranteed a long repayment period. Often, other forms of loans are for a shorter period, say 12 months. With a secured loan, because you are taking out a rather large sum of money, you can rest assured that you will have a long period of time to pay it off.
Depending on the amount and the collateral offered, your loan can be paid off between 1 to 5 years and even longer in some cases. What this means is that you will be paying lower instalment costs each month although interest added to the loan will also be higher.
- Large loan amounts available
Because you are providing collateral when you take out the loan, you are able to borrow a fairly big sum of money, much more that you would be able to if you had taken out an unsecured loan. Of course, the amount is still very much dependent on your income and expenditure. After all, you have to be able to pay the monthly instalments easily enough!
- Easy to apply for
Applying for a secured loan is simple. This is because the credit company know that you are offering collateral and therefore they have something to fall back on if you should default on payments. A secured loan is far easier to obtain than an unsecured loan.
These are just some of the numerous advantages of secured loans.
But how does one apply for such a loan?
Applying for a secured loan is fairly simple. The best way is to find a few credit providers that have secure loan offerings. Don’t just jump at the first one you find. Once you have found three or four options, start to compare the loans to find the one that will suit your needs best.
There are a few important factors that you should look at that will aid you in your decision. Perhaps the most important of these are the interest rates you will be charged when you take out the loan. This has a massive part to play in the final loan amount and will affect monthly repayments.
Then you need to see how long you will have to pay the loan off. A shorter period means higher instalments, something that is important to remember.
Finally, check with the credit provider what procedures they follow if you should default on a payment. Do they immediately claim your collateral? This is very important as some companies will give you a chance to get back on track, while other unscrupulous lenders will just claim your collateral at the first missed payment.
And there you have it, all you need to know about secured loans. No doubt, when you need a large sum of money in a hurry, a secured loan is simply your best option.