Guiding Borrowers Through The Maze Of Secured Loans

Guiding Borrowers Through The Maze Of Secured Loans



Guiding Borrowers through the​ Maze of​ Secured Loans
Before offering tips to​ borrowers planning to​ take secured loans,​ it​ will be necessary to​ first define the​ need for a​ guide to​ secured loans,​ i.e .​
why a​ customer needs to​ be guided through secured loans .​
There are two reasons .​
Firstly,​ lenders lend not out of​ generosity .​
The loan has to​ be paid back .​
If the​ secured loan is​ not paid back,​ the​ second reason starts operating .​
The secured loan stakes its claim on​ certain asset/assets of​ the​ borrower as​ collateral .​
The loan provider has every right to​ liquidate the​ asset pledged as​ collateral to​ recover his dues.
Since,​ the​ process of​ repossession of​ collateral is​ a​ painful process,​ it​ will be necessary if​ the​ secured loan is​ taken with sufficient knowledge beforehand .​
And how do you​ intend to​ draw this knowledge from? Past experiences with loans,​ experiences of​ friends or​ relatives,​ magazines and journals,​ and most important independent financial advisors (IFA),​ are all sources of​ advice utilised by borrowers in​ the​ UK.
Now,​ coming to​ the​ advice that constitutes an​ important part of​ secured loans .​
The first thing to​ decide will be the​ amount of​ secured loan .​
This is​ not as​ easy a​ decision as​ most of​ us will consider it​ to​ be .​
The amount must be fixed keeping in​ mind that it​ has to​ be repaid after a​ certain time period .​
The most appropriate measure of​ the​ amount of​ secured loan will be the​ needs .​
a​ parallel decision on​ the​ part of​ the​ borrower has to​ be made regarding the​ extent to​ which the​ secured loan will be used .​
The borrower may decide to​ employ secured loans for only a​ part of​ their needs .​
The rest will have to​ be met through the​ borrowers personal resources .​
If the​ secured loan amount is​ decided to​ be employed for any other purposes,​ only then should the​ borrower draw a​ larger amount .​
The idea here is​ to​ prevent a​ misuse of​ the​ secured loans .​
Amounts ranging from £3,​000 to​ £50,​000 are available for the​ borrowers .​
The amount sanctioned as​ secured loan depends on​ several factors .​
The amount of​ collateral tended,​ the​ form of​ collateral tended,​ the​ credit status that the​ borrower enjoys,​ and many more factors have their reflections on​ the​ amount of​ secured loan and the​ terms on​ which the​ loan is​ provided.
A secured loan is​ the​ easiest to​ avail of​ in​ the​ UK .​
The presence of​ collateral shows the​ commitment of​ the​ borrowers to​ the​ secured loans .​
Lenders as​ well as​ the​ borrowers know that the​ asset pledged as​ collateral will be repossessed in​ the​ event of​ non-payment .​
For the​ purposes of​ repossession,​ no litigation would be needed .​
Because of​ this convenience,​ most loan providers prefer to​ lend as​ secured loans .​
The terms on​ which the​ secured loan is​ lent will show the​ preference that they enjoy over the​ unsecured loans .​
The most glaring differences will be viewed in​ terms of​ the​ APR .​
APR is​ the​ comparative rate of​ interest being charged by loan providers .​
Because of​ a​ lesser degree of​ risk involved,​ secured loans carry a​ lower APR .​
Rates advertised by the​ lenders will be dissimilar with the​ interest rates actually offered to​ borrowers .​
Several other factors like the​ amount of​ collateral,​ credit history of​ borrower,​ etc .​
have an​ impact on​ the​ interest rate .​
The interest rate will be quoted accordingly .​
Borrowers can negotiate on​ the​ interest rate up to​ a​ certain level by increasing the​ points offered as​ fees to​ the​ loan provider.
Collateral comprises an​ equally important decision .​
The asset pledged as​ collateral commands a​ certain value .​
Losing them to​ the​ loan provider through repossession will be painful for the​ borrowers,​ whether it​ is​ house or​ any other asset .​
Home secures the​ largest amount of​ secured loan .​
Next,​ in​ importance is​ automobile .​
Borrowers presenting these assets as​ collateral are able to​ draw a​ larger amount .​
The equity in​ home will be compensated with an​ adequate amount of​ secured loan .​
Generally,​ 70-80% of​ the​ equity in​ home is​ sanctioned to​ the​ borrowers .​
Loan providers however are ready to​ offer up to​ 125% of​ the​ home equity,​ provided the​ borrower has a​ good credit history.
Borrowers also need to​ determine the​ mode of​ repayment in​ advance .​
There are a​ whole lot of​ methods to​ choose from .​
If the​ method chosen for repayment is​ through monthly instalments,​ then there need not be any further plan to​ off set the​ loan balance .​
However,​ where the​ borrower has agreed to​ pay only interest as​ monthly instalment,​ adequate preparations need to​ be made for the​ payment of​ the​ loan balance at​ the​ end of​ the​ term .​
a​ repayment vehicle in​ which payments are made monthly or​ at​ some regular interval will be a​ good idea to​ prepare for the​ future payment.
The advice rendered does not claim to​ shield the​ borrowers of​ any future repercussions .​
The knowledge of​ the​ future repercussions that their decisions can lead to,​ however force borrowers to​ take the​ necessary steps .​
These steps,​ in​ turn,​ shield the​ borrowers from the​ after-effects of​ a​ taxing secured loan deals.




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