Secured Loans
Secured loans are a type of loan protected by collateral. The collateral can be a real estate property, car and other valuables such as, bonds, stocks and jewelry. The purpose of collateral is its foreclosure in the event of non-payment of loan despite repeated notices, and after the grace period has been awarded to the debtor.
There are also circumstances in which the merchandises purchased become the collateral. For example, when you buy a home property or car through mortgages, the ownership of such assets are not awarded to the debtor until the full payment of loan including the interests and other applicable charges.
Businessmen who would like to obtain loans in large amounts need to have collateral of high market value. At times, the amount of loan granted depends on several factors. Among them is the fair market value of the asset served as collateral. The fair market value of collateral should be higher than the amount of secured loan.
Since the loan is secured with collateral, the interest rates of such loan are lower than unsecured loans. Moreover, the amount of approved loan is greater in secured loans than in unsecured. However, in case the secured loan is a financing loan such as home loan or a car loan, you are obliged to make a down payment of at least 10%.
Not everyone can avail the secured loan despite having a property for collateral. As mentioned earlier, there are qualifications that should be strictly met before anyone can get a loan. Your capacity to pay the monthly amortization is an essential consideration.
To prove that you can pay on time, your income is evaluated against all expenditures you have monthly. Even when you have high income, your loan application will still be rejected if your income is just enough to cover your monthly financial obligations.
The lenders use a formula to assess your income and monthly expenditures. They will require you to submit documents such as pay stubs for the past three months, recent bank statements and tax returns for the past two years. If you have additional source of income, you have to provide for its proof.
The lending institutions will also look into your credit history. If you have a bad credit rating, your chances of loan approval are low. Depending on the lenders, the process for secured loans varies. In some cases, there is a pre-qualifying and pre-approval phases.
In pre-qualifying stage, you are given an overview of the whole process and how much you can be approved of a secured loan. It is on this stage when you provide basic information without handing out the required documents and loan application form.
There are still, however, lending institutions which are willing to grant your loan at higher interest rates even with collateral. These lenders are called �shark� lenders. They charge you with high interest rates to prompt you to pay on time. When you do not have collateral for security, the interest rates are even higher.
