Minimizing Collateral Damage

Minimizing Collateral Damage
There are times when we all need help to meet our financial obligations. Sometimes we're just overwhelmed with monthly expenses or an unforeseeable expense like a sudden health issue or family catastrophe that leaves one strapped for cash. Sadly, it seems that those among us who are most likely going to need a low cost loan the most are the same people who will be ineligible or have to pay an exorbitant interest rate. In many instances a secured loan will be the best answer.

Wikipedia defines a secured debt as "... a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan." In the event that the borrower doesn't or is unable to meet their repayment obligation the property will be transferred to the lending institution. This limits the risk that the lender is taking. The downside is, of course, that the property of the borrower is at risk if they, for some reason, default on the loan.

Limiting that risk will give the debtor access to otherwise unavailable interest rates and eliminate the need for risky loans with a lender with a poor or unknown reputation, like a payday loan service. Payday loan services trade a stringent application process for higher fees and interest rates, which is the last thing someone who needs cash has to spare. Generally payday lenders require only proof of employment and bills in the borrowers name.

Before researching for a lender, research current interest rates and the status of your credit score. Verify the validity of any mars on your credit reports. It is wise to regularly pull a credit report from the major credit reporting agencies to insure no unwanted surprises. Knowing what interest rate you can expect will help assure you get a good deal on your loan.

When looking for a promising lender a local Bank or Credit Union, especially if the borrower is a member, is a great starting point. Check other local and online vendors to compare costs and rates to verify that the proposed interest rate is fair. Apply for a loan with the expectation of an unsecured loan, while being prepared that the lender may ask for something to be used as collateral. The interest rate on the loan will depend on credit scores and the individual institution's rates and fees. When signing and finalizing the loan make sure to understand the terms, conditions, and fees.

Hopefully, borrowing money can be avoided by waiting or doing without. One good idea is, before the time arrives, to put some money back with every payday in case of an emergency. Sometimes that is easier said than done and not knowing what could be coming around the corner makes it tough to know how much to save. Foresight is great but after the fact a secured loan may be a great opportunity for borrowers who would otherwise put themselves in a bad financial situation. Just make sure to be faithful with payments to insure the safekeeping of at risk property.

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