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Secured Loan Tips |
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A secured loan, in layman
terms, is a personal loan that is guaranteed by an asset
that is pledged as collateral against the loan. In other
words, the asset serves to lower the lender’s risk, and
in case you default, the lender can claim your asset and
recover all or some of its loan value. This security thus
reduces the lender’s risk and often allows the lender to
make loans that it would not otherwise make (even to individuals
with bad credit).
Another advantage of pledging security as
collateral
is that the lender will often offer you lower interest rates
due to the potential reduction in risk. |
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Negotiate, negotiate, negotiate |
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| You are pledging an asset
as security after all and while that asset reduces the lender’s
risk, you may lose your asset in case something goes wrong.
You must consider negotiating with the lender and depending
on how the lender’s loan program is structured, you may
be able to find some wiggle room for negotiating the loan’s
terms. |
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Know what you are pledging and the risks |
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| If you are pledging an asset such as a
home, carefully evaluate the risk to determine if it would
be worth the game. You wouldn’t want to lose your dwelling
after all. So, carefully consider what you are pledging
and if other options are available. |
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Understand the agreement and its implications |
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| Normally,
loan
agreements are complex documents that could often run in
several pages. Carefully read through all the terms and
understand their implications before you sign up. If you
are unsure, consult a qualified and licensed attorney to
help you navigate the fine print. Remember, a lot is at
stake here so don’t take this step lightly. You could also
ask your attorney if there is a way to negotiate or eliminate
certain unfavorable terms. |
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Make timely payments |
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| Pay on time! Well, this is one of the most
important caveats. Not only do you face late payment penalties,
you also stand to lose your valuable asset in case you default
and depending on how your loan agreement is structured,
this could kick in as quickly as a few months (or even weeks)
of defaulting. |
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