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Secured Loans – Top Benefits and Disadvantages

A secured loan is a kind of loan, where a borrower pledges his asset like a house or car to borrow a loan from a creditor. So, the debt is called secured debt and the creditor has every right to sell off the asset in case of loan defaults. The creditor faces low-risk as compared to unsecured loans where a borrower doesn’t put any collateral.

Usually, protected loans are available at lower interest rates as compared to unsecured loans and can be availed for a longer period of time. So, you have plenty of time to pay off the borrowed money. However, the loan approval process of secured loans is slightly tiresome.

Benefits of Secured Loans

You can avail a higher amount loan for a longer term

If you have a poor credit score then there are chances that you wouldn’t get a personal loan without any guarantee. Various traditional banks and lenders avoid bad credit borrowers as there is high-risk involved. In such circumstances, you can easily avail a protected loan by pledging your asset. Some of the benefits of secured loans are:

1. Improve your Credit ScoreImprove your credit score by availing a secured loan

Borrowing money on collateral can increase chances of improving your credit score. If you have taken a loan against your property, then you always try to repay debt on time. You can’t think of losing your property by going default. Your lender reports all on-time payments to the credit bureaus and hence your credit score improves significantly.

2. Higher Borrowing Limit

Secured loans give freedom of availing higher loan amounts

Lenders don’t hesitate in offering a high amount of money against your pledged asset. There is no risk involved as your asset is with the creditor hence you can borrow any amount that you want to avail. It is quite advantageous but you shouldn’t forget that the same amount with interest you have to repay. So don’t borrow high amount until and unless you actually need it and can repay on time.

3. More Repayment Flexibility

Choose your repayment schedule

Secured loans are more flexible as compare to unsecured loans. The lenders give you long tenure to repay the loan amount in EMIs. There is no pressure to pay back in 3 months or in a year. Repayment schedule can be customised as per your convenience.

4. Less-than-Perfect Credit History is Welcome

Poor credit score is ok but you have to pledge your asset

Whether you have a poor credit history or a less-than-perfect credit history, if you are ready to give your asset on collateral then there are plenty of protected loans available in the UK loan market. As your assets are with the creditors, so yours not so good credit scores don’t matter to them.

Disadvantages of Secured Loans

Regularly missed EMIs may cost your asset

Secured loans have both pros and cons. If you are sincere and pay off all EMIs on time then there is no problem at all. But if you are in the habit of missing repayments then there is a big problem. Here are some of the disadvantages of secured loans:

1. Your Asset is at High Risk

Does your pledged asset give you sleepless night?

If you have borrowed money against your house, then there is a risk of losing it. You can’t be so careless and regularly miss EMIs. If the lender feels you can’t repay the loan amount at all then he can declare you defaulter and list your asset for sale. Always think twice before opting for a secured loan. It is cheaper but risky.

2. A Large Amount of Loan Means High DebtDon't get crushed under high debt

Many borrowers don’t calculate their financial requirement properly and look for a loan amount that is not actually needed. They borrow more than what they need. It results in high debt. You spend the availed amount on unnecessary things and then panic as your asset has been kept as collateral by the lender and you need to pay high EMIs for a longer tenure.

Nowadays, availing a secured or unsecured loan through websites is not a big thing. There are various lenders who offer all types of unprotected and protected loans online. You need to fill a small online form and your money requirement will be fulfilled in the minimum period of time. Always avail a loan only when you really need it and don’t have any other way to get funds. Don’t overburden your monthly budget with high amount EMIs.