We have all had times when we are strapped for cash. Maybe you’ve finally started to get yourself out of debt but now need a faster recovery from bad credit scores. Maybe today is the day you’ve decided you’re going to start your own business.
These are all viable reasons to seek out a secured personal loan. However, there are some drawbacks to these loans in the form of risk to the borrower.
Ok, What Is a Secured Personal Loan?
People get confused by some of the linguistics involved in financial matters. So before anything else, knowing the definition of a secured loan becomes very important here. When a loan is secured it means the borrower carries the greater risk. An unsecured loan means the lender carries the higher amount of risk.
When you go to obtain a loan from a bank they’ll ask you about your assets. If your credit is less than perfect the bank will require something to be placed as collateral to secure the loan, or guarantee, that you’ll either make the payments on time or the bank will take possession of the collateral.
There are a bunch of different items that can be placed as collateral. In most cases, it’s a home, a car, a boat, or some other item that’s value substantiates the loan amount you’re borrowing.
What Is a Good Reason to Take out a Secured Personal Loan?
While a loan like this puts the heat on to make the payments on time and risks you losing valued possessions, there are legitimate reasons for utilizing them.
The best time to leverage a secured personal loan is when you have a guarantee of money on the horizon. Maybe you just need money to carry you for a month while you make the final calls to land that next big client. Maybe you’re holding purchase orders for your new business idea and need money to make the product. Maybe there’s an unforeseen emergency or sudden expense just a few days before your next paycheck is due.
These are great reasons to take out a personal loan because you know how you’ll pay them off.
Bad Times to Look for Personal Loans
If you’re desperate for cash, look everywhere else first before you start knocking on the door of the payday loan or title loan office. These organizations are founded on getting you reeled into an ongoing debt cycle.
Borrowing against a paycheck in the future, when you’re already living paycheck to paycheck, which means you’ll have to take out another loan as soon as you pay the first off. There’s never any extra capital to pay the loan amount and float until your next check while satisfying your bills.
Secured Personal Loans Are Good When Used for the Right Reasons
If you’re fiscally responsible and have a good reason for the money a secured personal loan is a great decision. You’ll be able to borrow higher amounts and have more capital available to you.
However, be wary of turning to them in times of desperation because they can make the problem worse in the long run.
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What Makes It A Good Option?