Getting a secured loan with the use of collateral gives you access to higher funds and this could come with relatively low interest rates regardless of what your credit looks like. These kind of loans also have their own risks which include repayment periods that are not so long as well as the possibility of having your property repossessed on failure to make the agreed repayments.
A collateral loan simply means transferring ownership rights on your property to the lender which could be your vehicle, your house, as well as, your savings account in exchange for a loan. An example of loans which need you to have a collateral is a mortgage, car loan, or a secured personal loan.
A car title loan involves securing a short-term loan from a reputable lender with the use of your vehicle’s pink slip. Check below to see the benefits and downsides of collateral loans –
Benefits
- This kind of loan does not have anything to do with your credit score. This means that you can access a secured collateral loan even if you have bad credit. The lender is secured by having your property rights.
- The interest rates that come with collateral loans are relatively lower when compared to unsecured loans. This is because the level of risk with secured loans for lenders is a lot more reduced.
- Due to the fact that the collateral is an asset, lenders are willing to give you even higher amounts because they will easily get their money back by fully repossessing the asset if you do not meet up with payments.
Downsides
- The requirements are usually more complicated when compared to unsecured loans
- You stand the risk of losing your collateral assets if you default
