Implications of a bad credit secured loan

4th August 2010

If you’re currently amidst some financial problems, you might be in need of some access to some cash. You might also need it quite promptly! By now, you might have been turned down repeatedly for unsecured personal loans. Perhaps that’s due to a bad credit score, or otherwise.

All hope is not lost, however, and you might still be able to obtain bad credit loans. A secured loan is a loan which offers you something to be considered as ‘collateral’. This is used in order to guarantee your repayment of the loan.

If you fail to repay the loan within the period of time you agreed, the lender then has the right to take possession of the object that you agreed to be your collateral. They will then sell the collateral in order to recover the money that they have lost. These secured loans are designed to aid those who have poor or no credit at all, in getting the loans that they might desperately need.

In addition, most lenders will be able to extend loans with much lower interest rates than the exact same loan with no security. This is because there is a security deposit involved (this is the collateral), meaning that the lender has a guarantee that they will be able to recover the money that they have invested in this person. The creditor does not have to rely on trust, and instead has dead surety that they will recover their money.

The most common types of collateral that are usually offered, tend to be real estate or automobiles. Though, this isn’t strictly all that can be used. Anything that is equal to, or greater in value the debt that will occur can be used. In most cases, also, you don’t have to give up your physical possession. You can continue driving in your car, and living in your house, even if you offer them as collateral.

As long as you keep making your payments, the agencies are often more than happy for you to remain in possession of your collateral.

All you will need to do is sign a note that will give your creditors the legal right to, or the title or deed for your car or home. Or indeed, whatever else you provide as collateral. The note must, either way, ensure that they have the right to take it. If you then default on the loan, and don’t make the payments you agreed you would make, then the lending agency will use that legal right to take away your property. If they take away your automobile, it is often known as repossession. If they take away real estate, then that’s often seen as foreclosure. But whatever happens, the lending agency will have the right to sell on your property in order to recover the value of the loan they gave you.

So all in all, it’s not impossible for you to get a loan if you have bad credit. You just must be aware of the implications.

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