Secured Loans – Low Rate Finance For Your Requirements
The main feature and advantage of secured loans are that secured loans carry lower rates of interest than many other types of loans that are available on the market. From a general low level of interest for regular loans, the interest rate can be further reduced for customers having excellent or good credit ratings and history with a secured loan. Borrowers with excellent credit ratings are considered less risky and are often offered the most competitive interest rates and terms available.
Secured loans are attractive because of the low interest rates; however borrowers must be able to provide something of value as collateral in order to qualify for a secured loan. Typically this might be a car when a car loan is being applied for or a home if there is sufficient equity in the home to cover the loan. Your equity is the difference between the appraised value of the home and all outstanding mortgages and loans that are registered against the home. Consumers should also be aware that if they fail to make payments on a secured loan the item they offered as security could be repossessed and sold to recover the remaining balance on the loan. This is standard business in the lending industry.
Low rates of interest can save a borrower thousands of dollars over the life of the loan depending on the size of the loan and the length of the loan and whether it is secured or unsecured. Secured loans usually always carry a lower interest rate than any other type of loan. There is a cost to placing a secured loan or mortgage. Typically your home must be appraised to determine its current market value compared to other similar homes available in your area. There will be an appraisal cost for this work. Next your loan or mortgage must be registered against your home and a lawyer will need to register this for you. There will be legal fees to pay as a result. In some cases the lender will charge registration fees and processing fees. If you have a high credit score, these costs can sometimes be negotiated away with the lender picking up most or all of the costs.
An Example of Interest Rate Savings
For example if a consumer were to borrow $10,000 over a period of 5 years and make his loan payments at the end of each month, he or she would have a monthly payment of $189.45 for a loan that carried a 6% interest rate. Over the life of the loan they would pay a total of $1,524.71 in total interest charges.
If this same consumer were able to apply for and be approved for a secured loan which gave a low rate finance option to meet his requirements and reduced the loan interest rate by 1% to 5%, his new monthly payments would be $185.27 or a savings of $4.18 a month. It may not sound like much, however over the life of the loan his total payments of interest would add up to $1,270.59 or a savings of $254.12. This is nothing to shy away from and in fact could be a car payment for many people. These savings could also be eaten up by the processing fees and registration fees and in the end may not be that attractive to many consumers unless it is for a car loan in which case most lenders will automatically want the loan registered to your car.
Now let’s consider a larger loan at higher interest rates to see what the differences would be for a secured loan vs. an unsecured loan. Let’s assume an unsecured loan of $85,000 at 9% over 10 years. This could be for a mortgage on a home or a cottage. The monthly payment would be $1,015.60 and the total interest payable over the life of the loan would be $38,564.96. A secured loan might be able to achieve a 2% reduction in the interest rate, down to 7% which should be a substantial savings for this fictitious consumer.
The new monthly payments would be $945.16 and the total interest payments would be $29,994.97. The monthly payments reduced by $70.44 and the total interest savings would be $8,569.99 over the life of the secured loan compared to the unsecured loan. This is a substantial savings and really illustrated the difference in the interest rates between secured and unsecured loans.
Borrowers who are confident of meeting all of their loan obligations should always consider secured loans to reduce their overall interest costs and save thousands of dollars in interest charges. After all, this is money that is better in your pocket than that of the bank!
A Line of Credit as a Secured Loan with Low Rate Financing
Many consumers know that they will need small loans over time for a variety of things. This could be for a car loan, renovations to their home, landscaping or sudden expenses that just seem to appear out of nowhere. A roof starts to leak and must be replaced. An air conditioner or the furnace needs major repairs and it is just cheaper to replace them. These are major expenses and not everyone has this kind of free cash laying around, so they need to borrow money to pay for them.
If you have to apply for a loan each time, it can be time consuming and frankly a bit of a bother. Arranging a secured line of credit loan is far more practical. It will be approved for a maximum amount and the client can draw on this loan up to the maximum and also pay it off completely any time. Once it is paid off, it is still available for future requirements if and when they may need to borrow once again. You might have to spend four or five thousand to replace your furnace for example. You can pay for it using your line of credit and then repay this loan amount over the next few months. Most lenders ask that you always pay the interest accrued each month as a minimum payment and of course you are free to pay as much as you want beyond that.
A secured line of credit loan also offers a better interest rate as well and usually is tied to the prevailing bank rate which has been extremely low for the past few years. At time of updating this post, interest rates are forecasted to remain low for a number of years, making a line of credit loan that is secured a good choice vs. a regular loan.