Pros and Cons of Secured loans

Secured loans are loans that are offered by ensuring collateral against the possibility of a default. The most popular collateral assets for which secured loans are granted are property and automobiles (cars in particular). Secured loans provide the lenders with a fall back option in the form of the collateral security, in case the loan is defaulted. The customers in turn are offered better deal in terms of interest rate, duration and loan amount. There is a lot of debate to determine the good and bad of secured loans but the fact remains that this is one of the more popular loans that are available in the market. Here is a list of advantages and disadvantages that one needs to know before deciding on a secured loan.

The borrower comes off with a better deal when compared to any other type of loan. A long duration loan is the most preferred borrower option and secured loans offer them exactly that. The interest rates are also comparatively less and the final sanctioned loan amount tends to be high (some times more than 100% of the collateral value)

The lender feels safe enough to offer favorable terms to the borrower because of the secured nature of his investment. The lender is willing to combine the value of the collateral along with the repayment ability of the borrower and then provides a package which otherwise would have been improbable to offer.

Secured loans also provide an avenue to borrowers with bad credit to obtain favorable terms of loan sanctions. Normally bad credit borrowers end up with short duration loans and high interest rates. Their less than perfect credit history leaves them with very little chance to emerge with a better bargain with the lenders. The odds are a lot better when a collateral is offered as a security against default to the lender. The credit history does not matter that much when the lender is sure to recover his investment by taking possession of the collateral, if it comes down to a default situation.

The disadvantage of secured loans is that the borrower ends up empowering the lender to control the asset that is set as the collateral. This asset, which often is of a much higher value than the loan, is not the borrowers anymore, to make decisions on. In fact, many debt counseling experts ask the borrowers to keep the secured loans option as the last resort. If the borrower is already suffering from a debt situation, the risk of losing the asset while borrowing secured loans is very real.

People who are self employed and newly employed find it easier and more beneficial to apply for a secured loan. Their employment status is not used as a disadvantage when they opt for secured loans and are likely to be offered better terms. Re-mortgaging is also an option that can be linked with secured loans and generally, the borrowers are likely to get better rates and repayment terms.

Like all loans, applying for secured loans need a proper analysis of all the pros and cons and the ultimate decision should be based on the necessity of the situation rather than the ease of the loan availability

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