Using Collateral For A Bad Credit Secured Loan

Using Collateral For A Bad Credit Secured Loan

by Paul Rogers

If you are one of the unfortunate yet countless millions of people with poor credit, you may be faced with the possibility of taking out a bad credit secured loan. Many of the lenders today will indeed take on someone that has a poor credit score provided they have some sort of collateral to apply to the loan. This is not to say that you will be hit with much in the way of fees or service charges, it merely means that you will be required due to poor credit to have something as security for the purpose of repayment should you default on the loan.

What Could Be Considered Collateral?

When it comes to a bad credit secured loan, there are a few options that you can choose from. Quite often, people will place their home or land up in collateral for the loan. This is something that should seriously be considered prior to signing however. Many times people take out a secured loan, and use their home as collateral only to default on the terms and or conditions of the loan itself. What this does unfortunately is allow the lender to seize your home or property in exchange for the loan interest or capital, if they feel that they are going to loose out. What started out as a very low bad credit secured loan, has manifested into a very expensive and less than ideal situation for the borrower in the end.

Doing The Maths

When it comes to the interest rates for these loans, many things have to be considered. There is the credit aspect and just how damaged your credit rating may be, there is the term or length of the contract, and there is the value of the property that you are putting up for security on the loan. All of these factors play key rolls, in the final rate of interest that you will receive for the loan.

While it may be true that you can receive 125% of the value of your property, this in no way determines that you will pay a lower interest rate in the end. While all of the lenders are required by law to follow a certain guideline that has been set in place by the government, this does not mean that interest rates are steady or are the same for everyone.

Default Means The Loss Of The Second Chance

When you take out a bad credit secured loan, and you default, you have basically sealed your own fate and will more than likely never get the chance to redeem yourself. This is due to the fact that you have poor credit to begin with; combine this with the default on the current loan and loosing your property in the default. There will most likely never be another chance for you to make this up, completely aside from the fact that you have lost a very big investment in the process.