Let’s say you need money (and who doesn’t?) perhaps to pay bills, buy an appliance, make home improvements or repairs, or take a vacation. Borrowing money with a secured personal loan can be a good option.
Personal loans can be a fast and simple way to get the cash you want; however, they sometimes require that you provide collateral to secure this type of loan during the application process. The answer to your collateral needs may be parked outside right now.
Not to be confused with an auto loan, an auto-secured loan is a line of credit secured with a personal car or truck. Your car or truck can be a valuable asset to secure a loan for the cash you need.
Auto title loans operate more like payday loans with triple-digit interest rates, short terms, and risk of falling into a “debt cycle” where you are required to roll over your interest if you don’t make your payments on time. These loans do utilize collateral in the form of your auto title, but the high-interest rates and short terms distinguish them from an auto-secured personal loan.
Collateral is something you own that helps you secure a loan for the money you need. When you ask for a personal loan, you promise your lender that they can have something of value that belongs to you (collateral) should you fail to repay the loan. The lender would then sell that item or investment to get their money back, in the event you default on the loan.
Offering collateral for a loan improves your chances of being approved for the loan and can generally get you a loan of a larger amount at a lower interest rate than an unsecured loan.
When lenders value your asset or collateral, they will consider the “loan to value” ratio or LTV. They may offer less than the current value of your collateral to be sure they can collect enough to repay the loan if the collateral loses value. For instance, they may offer 80% on the current value of a home or car.
There are many types of collateral possibilities. Your lender can give you more specific information. Bear in mind that whatever you use must be adequately insured in order for it to be accepted by the lender.
• Your credit score, or lack of credit history, is not as much of a factor because your lender is taking less risk.
• Your lender may offer lower interest rates because of lower risk.
• You may be able to borrow a larger amount depending on the value of the collateral.
• It can help you establish better credit, as long as you make monthly payments on time. (Be sure the lender is reporting to credit bureaus.)
• If the minimum monthly payments for the loan are not paid in a timely manner, your collateral could be repossessed by the lender. Always stay in contact with your lender if you foresee any problem with making payments.
• It is possible to qualify for an unsecured personal loan with no collateral. However, these loans are sometimes offered at much higher interest rates.
• Credit cards generally do not require collateral; however, their interest rates fluctuate and have less rigid payment schedules that can lead to undisciplined spending and rising balances.
• Consider using a co-borrower with good credit to obtain a loan at a good rate of interest. The risk may be higher for the co-borrower, so be certain that you will be able to make payments on time to keep the loan term and your relationship intact.
• Avoid predatory loans such as fast cash advances, car title loans, no credit check loans, or payday loans with very high-interest rates, exorbitant fees, and short payback times. You can end up paying back two or three times the original loan amount.
Your friends at Regional Finance are here to discuss different options to help you meet your personal finance needs and goals. Our fast, fixed-rate personal loans can help consolidate your debt or help get you the cash you need. We can also help you with information about how to keep your budget on track. You can start your loan process here by prequalifying now online or call your local branch.
References accessed on March 15, 2021
The pros and cons of collateral loans
Best Places to Get Secured Personal Loans
How do title loans work?
Loan-to-Value (LTV) Ratio
Secured Personal Loans vs Auto Title Loans – Which are Predatory?
You can prequalify for your loan online in just minutes. Or, if you prefer, call or stop by your local branch. Our loan specialists can answer any questions and help you fill out an application for the personal loan that fits your needs.