Secured Loan and Its Repayment

A secured loan is a loan that is given against a property. Secured loans are the most popular loans among lenders. A secured loan reduces the lender’s risk since it is backed by a security. If the borrower defaults on repayment of loan, the lender will get a legal right to repossess the property. He may then sell off the property to recover his money. The amount of loan that can be obtained depends on the equity in your property. The rate of interest depends on your ability to repay the loan and your financial position.

Borrowers with a clean credit score are charged a low rate of interest. Lenders charge high interest rates on bad credit secured loans. A credit check is done before offering a secured loan. All your previous credit transactions will be checked, such as credit card bills payments and loan repayments. Any default or late payment will go against you when it comes to determining the rate of interest.

There is a heavy penalty on making a default on the repayment of a secured loan. As mentioned earlier, you may lose your property if you fail to repay the loan. Default is not always intentional. Sometimes, unavoidable circumstances such as death, accident, sickness or involuntary job loss may lead to non-repayment of a loan. To avoid this, you must take out a Payment Protection Insurance which covers your repayments in the event of death, accident, sickness or involuntary job loss.

There is one big drawback of Payment Protection Insurance. The amount of Payment Protection Insurance is added to the original loan amount and then the interest is charged on the entire loan amount. This doubles the actual cost of the loan. There are alternatives available to Payment Protection Insurance that include income protection policy and short term income protection. In case of income protection policy, you are paid a percentage of your income if you lose your job due to accident or sickness. In case of short term income protection, you will be paid for a year in case of accident, sickness or job loss.