| 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. |
| 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. |
| 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. |
| 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. |
| 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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