A secured loan works by using the equity available in your home as collateral. If you default on the loan, the lender will simply take ownership of your home. Because it is up to you to make sure that you will make all of your scheduled payments (and make them on time!), the lender has a solid reason to feel secure about offering you the loan. If you fail to make payments, the lender will simply take your home. If you have a proven track record of making payments on time and in full, many lenders are willing to overlook your bad credit and offer you a secured loan with a lower interest rate and a lower monthly payment. Before you apply for a loan, however, you should make sure that you have a stable and thoughtful budget in place to ensure that you will be able to make the payments on a regular basis. A credit repair program is not necessary for a secured loan, because you will never actually be given the money in cash. Rather, you simply promise to faithfully make on-time payments until the loan is paid off.
Before you are ready to apply for a secured loan, however, you should have a well designed budget in place. This will give you greater control over the money that you borrow and will allow you to shop around for the best deal on your loan and the terms of your loan. Because you will have done your preparation, you will be more confident about approaching a lender for a loan and will have more bargaining power - and, therefore, a better chance of securing a better loan agreement.
Even if you have a less-than-perfect credit history, you may still be able to secure a loan if you have an asset to offer as collateral and if you have a good faith plan for repaying the loan. The exact terms of your specific loan agreement will depend on the collateral offered and on the amount of the loan requested and the collateral's value. Most homeowners are able to obtain a low-interest secured loan of about $15,000 to $25,000. Securing a loan, even a larger one, is often necessary for purchasing larger ticket items, such as a vehicle or home, in this economy. If you have a less-than-perfect credit history, you may still be able to qualify for a secured loan, but it probably will be at a much higher interest rate.
An unsecured loan is one offered without any collateral; since the lender funds to cover the loan in case of a default, these loans are by definition "unsecured". In general, if you can prove that you have sufficient assets to cover repayments of the loan, you will likely be approved for an unsecured loan.
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