The Pros and Cons Of The Bad Credit Secured Loan

Until very recently, having bad credit prevented many people form being able to borrow money. But times have changed, and today there are lots of lenders willing to adjust their lending standards to include bad credit secured loans for those whose credit histories are less than stellar.

Your challenges are to first find one of them and to then decide if you want to risk some of your assets as security on a loan you may not be able to pay. Defaulting on the loan so will not only cost you your assets; it will decrease your already poor credit score.

Applying for a bad credit secured loan is not very much different from applying for any other sort of loan; while a bad credit secured loan takes your home equity or other assets into consideration as potential collateral, it also weighs down your poor credit history.

Even so, you may be able to find a lender who will grant you a bad credit secured loan no matter how poor your credit record or your present financial state. You will, of course, be assessed a higher interest rate on your bad credit secured loan than the rates offered to those with good credit histories, but if you offer your assets as collateral, you may qualify for a more favorable rate.

Understanding Collateral

Before you pledge your collateral, however, you should make sure you will be able to meet your payments, or your collateral will be forfeited, and if your house is the security for your bad credit secured loan, you could be in real trouble.

In simple terms, a bad credit secured loan will require you to pledge your property to the lender, who will be its rightful owner until you pay back what you borrow. If you cannot repay the loan, your lender is allowed to sell your property to cover the balance of your loan.

But repaying a bad credit secured loan is one way for you to reestablish your credit, and with a good credit rating you will have a much brighter financial future. Getting a bad credit secured loan will give you a new start, although the repayment period for such a loan can last between five and twenty-five years.

There are lots of lenders who deal exclusively in bad credit secured loans because of the enormous profit margins involved. They are assuming a very high risk by lending money to people who have proved to be poor money managers in the past, so they are somewhat justified in charging elevated interest rates.

by David Faulkner