What is a secured or a bad credit loan?

loansecureHaving a loan default or even the inability to pay off your debt, even credit card payments in time gets noted down in your credit history. This credit history affects how financial institutions rate you as a potential loan and credit card customer. If you have managed to fall into that particular category, where your credit history is being viewed as “bad”, then you will, most likely, be turned down by most such institutions should you apply for a common loan, mortgage or credit card. Lately, with the fluctuations of the market and the recession hitting hard, many lenders are starting to accept applications from bad credit holders, if they have some kind of valuable collateral they can put up against the debt.

Positive side of a secured loan

If you are a home owner, you put your home, house, building, lot, or whichever real estate you own as collateral, which is the safeguard that you will repay your loan, despite your less than stellar credit history. You can borrow a substantial sum of money, depending on the value of your property, but loans up to 100,000 quid are not uncommon. Such amounts not only provide you with means to fix whatever financial problems have brought you into your dire predicament, but also give you plenty of extra cash to get your life in order and put a new foundation for your future life. If you make continuous, regular payments, on time and you do not default on this loan, with time your credit assessment is getting better and better. After a certain amount of time, you will be able to entirely repair your credit rating, meaning you may apply for a credit card, your checking account can have overdraft capabilities and all the other amenities of a good credit standing will be at your disposal.

Negative side of a secured loan

If you default on this loan, you will lose your property. If it is a property where you live, you will find yourself either homeless, or you will have to rent living quarters elsewhere and move, because the bank will repossess your home and sell it at an auction to cover your debt. Needless to say such an auction may not provide for the entire sum you own, where you may wind up without your home and additionally still owe money. If you do not default on your loan and it is a long term loan, you may wind up paying much more than you borrowed originally, sometimes even more than twice that amount. The interest rates are generally not fixed; chances are they will change in time, most likely to your disadvantage and your monthly instalments will rise accordingly.

Conclusion

A secured or bad credit loan may provide you with proper means to consolidate your bad credit and fix any and all financial troubles you may have found yourself dunked into. On the other hand you are burdened with a serious debt, whereby your property, or rather home, is at peril should you default.