Secured loans are debts that you secure with a collateral-like a home, car or any other property. In case of defaults, your creditor will take possession of the assets used as collateral and may sell it to recover the amount they loaned to you.
Because you are granting your creditors a portion of your rights to a specified property, it is important to consider several factors before you get a secured loan.
How do you prepare for loan applications so that it becomes a solution rather than a problem?
Let’s start with the things you wish you had known before you signed up for mortgage, home equity loans or your credit cards.
“They said it’s a low-interest loan, but my debt keeps growing and so is my interest rate.”
“They told me I have zero interest in 1 year, but my credit card statement says otherwise”
“I took out a second mortgage to help me pay for my first mortgage, but now – they’re the one filing for foreclosure.”
A secured loan is a contract, and not a leap of faith. So, there should be no surprises at all. You can always avoid them – even the most difficult ones by following these steps.
Get to know the company.
The most important thing when you’re getting a loan is the company itself. You are borrowing from a lender who has the right to go after your property. They have the right to make you homeless when you miss payments. If a company has a good reputation, keeps up with its promises and puts their customers’ interest on top of their own – then you have nothing to worry about. But, if you are not sure whom you are dealing with, there’s a big chance that they will run away not only with your hard-earned money but with your collateral as well.
Preparing for a loan, is largely about two things: making sure you are dealing with the right lender, and making sure you know what you are getting into.
Read before you sign and communicate doubts
If you don’t understand the terms of the loan agreement, don’t sign them without asking for a detailed explanation of what they are. No matter how urgent is your need for cash, take time to read the terms of the loan, and ask questions about certain provisions that you don’t understand.
You have to be able to talk to your loan officer about important things that will have a huge impact on your future finances, such as the interest rates, the late penalties and how much you’ll end up paying if you miss payments for several months. Good communication is key, not only to personal relationships, but to a business relationship with your creditor as well.
You can go deeper to issues like-what happens when I default on payment? What are the procedures that the company will do to collect payment from me? Will you send my account to a collection agency? We don’t know what will happen tomorrow, so it is important to clarify things with your potential lender even before the contract begins.
Track your spending
Your budget worksheet is not a wish list. It is a guide of what you are going to do with your money, in a smart way. When you create it, make sure that you track your expenses for at least 30 days. Record every purchase and every bill you paid. The moment you realized where your money is actually going, you can make an educated decision about how you can pay for a secured loan. Many borrowers make the mistake of becoming too financially impulsive, that they take out loans, put their homes and cars at risk, without thinking about how they can adjust their budget to make way for the monthly repayments.
Here’s another tip when setting budgets. Do not deprive yourself of simple pleasures that will make your life boring. You may end up sabotaging your own budget and losing the interest to earn money. Self-deprivation is the easiest indicator that your budget is doomed to fail. Instead, allocate your money wisely. Moderation is important even in saving money. If you’re going out every week, you can try having fun with your friends every 2 weeks or you can still do it every week, but in a cheaper way. Instead of going out, how does a home cooked meal sound?
Consolidate your loans.
It is the easiest way to ensure that you can pay on time. Having multiple debts to pay is a bit confusing and overwhelming especially if your budget is tight. If you want to get ahead, a debt consolidation plan can help you pay down all your existing debts, save money on interest payments and set them aside for savings.
Learn more tips on how to use your secured loans wisely by making an enquiry today!