What Are Collateralized Personal Loans & How Do They Work?
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Collateralized Loans Definition
Pros and Cons of Collateralized Personal Loans
The lender may offer a larger loan amount. The interest rates may be lower than with an unsecured loan. You may qualify for a loan even if your credit scores aren’t stellar. For those with little credit, a secured loan can be a way to build credit.
Depending on your situation, a job loss, an unexpected illness or other unforeseen circumstances could cripple your finances. It’s a good idea to make sure you have sufficient savings — enough to make those loan payments — to tide you over should such a crisis occur so you don’t end up losing your collateral. Because an asset is involved, that means more paperwork. You’ll need all the documentation that shows you are the owner of the asset, and the lender will need to verify that information. This means this process won’t be as quick as perhaps applying for an unsecured loan when less is on the line, marking another difference between unsecured and secured loans.
What Qualifies as Collateral for Personal Loans?
Alternatives to Collateralized Personal Loans
An unsecured personal loan: Among the different kinds of personal loans, another option to explore is an unsecured personal loan. This might be a good option if you have a high credit score, as you may qualify for a better interest rate because you’re considered less of a risk. Typically, interest rates can be higher for unsecured personal loans as there is no collateral backing you. Borrowing from family or friends: You might turn to family and friends to get the funds you need. Just keep in mind that if you fail to repay the amount borrowed in a timely manner, your relationship with that person might be on the line. A secured credit card: If you’re looking for a way to boost your credit score but have too thin of a credit history to qualify for much, a secured credit card could be an answer. With a secured credit card, you put down a deposit that’s typically equal in amount to your credit line. The issuer can hold the deposit if you don’t pay your bill
Collateralized Personal Loan Application Process: What to Expect & Tips for Success
Take the time to get your documentation in order before applying. For starters, you’ll need proof that you own the asset. Also expect to be asked about your credit history and credit score. The lender will also likely request to see bank statements and proof of income. Be prepared to shop around. Like all financial products, each lender has their own requirements and pluses and minuses. Examine them closely, and consider various options, from banks to credit unions to online lenders. Review your credit report yourself before applying: If you want to up the odds that you get approved for the loan, even before you approach a lender, pull your credit report. You want to know what’s being said about you. Look for any errors and correct them as soon as possible. Consider boosting your score before moving forward: If your credit score is none too impressive, it might behoove you to wait before applying for a loan. Instead, use that time to work on improving your score so that when you do apply, you’re more likely to secure a competitive interest rate and terms.
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