The Advantages and Disadvantages of Secured Loans
What are the advantages and disadvantages of secured loans? In this article, we will examine the pros and cons of secured loans. From credit score to asset value, we will examine the key factors to consider when deciding whether or not taking out a secured loan is the right decision for you.
Before we begin, a quick recap.
What are secured loans?
A secured loan is a loan that is backed by an asset, usually property. If you cannot repay the loan, rather than racking up more and more interest, the lender claims the asset.
To be eligible to take out a secured loan, you need to be able to provide an asset (or assets) that match the equivalent value of the loan.
Possible assets you can borrow against include:
- Your home
- Stock portfolios
- Material investments such as precious metals or art
If you do not pay back the loan, the lender takes ownership of the asset and sells it to reimburse themselves.
Advantages of secured loans
There are many advantages and benefits of secured loans for both the borrower and the lender. In this section, we will explore the key advantages for the borrower.
- You don’t need a good credit score
As long as you have the assets, you don’t need a good credit score to take out a secured loan. Although some lending platforms may offer better interest rates for borrowers with higher credit scores, you can still get access to fair rates with a poor credit score assuming you have the collateral.
- Long repayment periods are available
As your lender is assuming less risk, repayment times for secured loans can be extended to ten years or more. This gives you plenty of time to pay back the loan at your own pace.
- Lower Rates
One of the biggest advantages of taking out a secured loan is that the rates tend to be more reasonable than unsecured loans. Rates online start as low as 3.2%.
- Access to larger loans
As long as you have the assets to secure your loan, you can access larger amounts of credit, even if you have a low credit score. This provides more options if you are looking to invest in larger assets like property or a small business.
- Potential tax deductions
Some types of secured loans are eligible for tax deductions for the interest paid on the loan each year. When you take out a mortgage, for example, you can claim tax back on interest paid on the mortgage up to $750,000.
Disadvantages of secured loans
But it is important to understand both the advantages and disadvantages of secured loans as well. Here are some of the downsides to borrowing against your assets.
- You could lose your valuable assets – even your home
The most obvious downside to secured loans is that if you cannot pay the money back that you borrowed, you will lose any assets you used as collateral. This can be particularly frustrating if the value of the asset has increased since you took out the loan.
If you are using your home as collateral, the results of missed payments can be severe. By putting your home on the line, you may end up in a position where you have to borrow even more money to prevent the lender from seizing your property.
- Variable rates
Another factor to take into account is that secured loans often have variable rates. Personal loans, on the other hand, tend to have fixed rates. This means that your interest rates may start off affordable but could then jump in a few years’ time. This usually happens if the national bank raises the base interest rate.
- Your income can affect the terms you are offered
Although secured loans allow you to borrow with a low credit score, loan providers still typically favor borrowers who can prove they have a consistent income and can make repayments. This means your situation may have an impact on how easy or difficult it is to get matched with a lender.
However, there are a growing number of secured lenders that let you use collateral to take out a loan, no matter your credit score…
Capitalize on the advantages of secured loans with MyConstant
In modern lending, a new type of collateral has become popular: cryptocurrencies.
When you borrow against your cryptocurrency, you avoid cashing out of the market at the wrong time in exchange for quick and secure loans online.
At MyConstant, we aim to take the trust out of lending and we offer the best rates because of it.
On our platform, you can use cryptocurrency as collateral to secure a low-risk personal loan no matter your credit score. We also offer features like:
- Low-interest rates starting at just 6% APR.
- Instant matching time for loans.
- Secure storage for your collateral.
- The option to use multiple cryptos as collateral for your loan.
- Payback in cash or any of our 70+ accepted cryptos.
Apply for a secured loan with MyConstant today and get good rates for the cash you need today.
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