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What is a Secured Loan?
Simply put, a secured loan is a type of loan that leverages your home as security against the loan that you take out. People use secured loans for many reasons, such as needing to raise a large amount of capital very quickly, having trouble qualifying for an unsecured loan, or simply just having a bad credit score. Lenders have the ability to exercise greater flexibility when deciding whether to award loans to applicants, because they have the peace of mind knowing that you are more likely to pay the loan back with your house on the line.
When applying for loan, it is always important to remember that your home is not safe from foreclosure if you cannot keep up with the loan payments. Make sure to read the fine print and understand your agreement before entering into any contract that you don’t understand.
What are the Benefits?
The benefits are many. For example, you will generally have lower monthly repayments than you would have with repayments for unsecured loans. You also have the ability to borrow substantially more money than you do with other loans. You have the option to spread repayments over a much longer period as well.
How Do I Qualify?
First, you must have some equity built up in your home. You can then visit any bank, preferably the bank you have your accounts with already, and use the equity in your home as collateral for the loan. The amount of credit that the bank will give you ultimately depends on the amount of the mortgage that you’ve already paid back, i.e. the equity in your home. Part of your application process will include explaining to the loan officer exactly what you intend to do with the money. This step is crucial because you will be assigned a level of risk by the bank, so the institution can decide what amount of interest they should assign to you for the loan.
How Can I Use the Money?
There are many ways you can use the proceeds from your loan. Just make sure that you are clear with the lending institution about how you plan to spend the money so you don’t end up in any hot water down the road.
Many people use the money for home renovations, such as new bathroom suites or kitchens, new furniture or redecorating a home, or exterior home improvements, such as adding an in-ground pool. Banks see these as low-risk loans, because the homeowners are improving their property value with the proceeds.
Other uses for the money can include vacations, caring for a sick relative, paying off or even consolidating your debts. Banks see these reasons as a little more risky, so you may end up with a slightly higher interest rate as a result.