Tag Archives: risk
Guaranteed Unsecured Loans, A Good Idea?
Guaranteed unsecured loans are meant to speed up the process of finding approval for people with a bad credit history, but are they a good idea?
The first thing you need to understand is that lenders offer you interest rates based on the level of risk the lender feels they are taking.
The conditions of these offers are already a higher risk, without the added promise of approval for all. See, a secured deal gives the lender some form of collateral in the case that you fail to make your payments, and because the lender has this assurance they offer you, the customer, a lower interest rate. But, because we don’t have any kind of collateral, your interest rate goes up.
Then you add into the equation your bad credit history, which means the lender is taking a much greater risk that they will not be repaid. This will raise your rates a great deal more.
And then on top of all that when you add in the promise of approval for everyone for guaranteed unsecured loans. This means that people with worse financial histories than what you have are approved, and the interest rates offered typically reflect that risk the lender is taking.
Of course, if you have terrible credit and no time to try and seek out approval and receive multiple rejections, then this price may still be worth it for you. If you do manage the payments well and make them on time each month this will even help you build up your credit history for the future.
However, if you have the time, you can still try and apply at more traditional lenders. If you have a job that you’ve had for a while and have lived in the same area for a good period of time these things will help establish you as a stable customer. It will also help if you can explain why you’ve had financial problems in the past, such as medical bills, divorce, or other experiences, and some things you’ve done to help rebuild your credit since then.
If you can find a more traditional offer you will still have high interest rates, but lower than what you’ll find with guaranteed unsecured loans.
Common Questions About Using Collateral On a Loan
Using collateral on a loan is the easiest way to get yourself approved and get yourself a great interest rate, especially when compared with unsecured financing options. But how does it all work? This can be overwhelming and confusing, but it certainly doesn’t have to be. These common questions cover basic things you’re going to want to know before you start diving into the world of financing.
What is collateral? Collateral is the security you promise to your lender. It’s saying to them that if you fail to make your monthly payments, they have this as security that they can repossess to cover their losses.
What is a secured loan? This is where you offer up some form of collateral. In unsecured financing there is none. In this type of loan your property can be repossessed if you don’t make your payments each month. By having this type of security the lender feels safer, that there is less risk, in lending to you. When there is less risk lending to you companies are more likely to approve your application and are more interested in working with you.
What can you use for collateral? The short answer is anything, but the longer answer is that every company sets their own standards. Banks will mostly only work with real estate and this is the most common form of security. However this is not the only type. The second most common option is a vehicle. It’s fairly easy to find a good number of lenders who will work with a car as collateral. Less common, but still out there, are those who will work with high priced items, like collectibles or jewelry.
Can I keep using my property while it’s being used as collateral? That depends on the item being used. When you are doing real estate or a car, then you can go on using your item as normal. With other high priced collectible items, however, lenders will often hold the item until you have finished making all of your payments.
Why would I want to do this? While there is certainly unsecured financing out there, using collateral makes it a lot easier to get approval. This is important if you have something like bad credit in your history. There are more benefits beyond that, however. By making the lender feel safer that you will repay things, and taking the risk off of them, they are more happy to work with you on things like the amount of your monthly payments, and most importantly, your interest rate. Secured financing is going to have the best interest rates available for you.