Personal loans are a popular borrowing option among the millennial generation for covering large expenses, refinancing debt, and building credit.
Secured personal loans are a particularly useful option. They require the borrower to provide a valuable item as collateral. Then, the lender can seize this and sell it to cover their loss if the borrower defaults. This reduces the lender’s risk, which benefits the borrower in many ways. So, with that said, here are four reasons why individuals should consider a secured personal loan:
1. Can be easier to qualify for
If you’re trying to get your first loan and worried about approval chances, secured loans are often easier to qualify for than unsecured loans. This is because the collateral offsets the lender’s risk of you defaulting. As a result, the lender will be more lenient.
Some lenders also have less strict credit score requirements for secured personal loans. They might want to see factors in addition to your credit score, like proof of steady income and employment, to make an approval decision.
2. May be able to receive a larger loan amount
The collateral reduces the lender’s risk, and the loan amount is often based at least partly on the collateral’s value. This means you may be able to get a larger loan amount with a secured personal loan than an unsecured one. For example, if you have an investment account with $30,000, you may be able to use that as collateral to get a bigger loan.
3. May be able to get a lower rate
Again, secured loans are less risky to lenders. So, the lender won’t charge you as high of an interest rate as an unsecured loan with the same amount and term length. This can help you save a substantial amount in interest over the life of the loan. Additionally, it can lower your monthly payment. As a result, you could fit your payments into your budget more easily and minimize the chance of defaulting.
4. Can help you build credit
Many people may be just getting started with their credit score, or they may have lower scores due to economic turmoil. Regardless, secured loans can be great tools for building your credit. Many loans that require a credit check report your payments to the credit bureaus, and a history of on-time payments can raise your score significantly over time. Since secured loans are easier to get, they can be a great first step in building or rebuilding your credit.
Secured loans can be excellent for some borrowers
Many borrowers could benefit from secured personal loans. The collateral offsets the lender’s risk, so they’re often more lenient with approval criteria. You can usually get lower interest rates and larger loan amounts than unsecured personal loans as well.
Secured personal loans can also be great credit builders for these reasons. Borrowers with no or poor credit could get a secured personal loan and build credit through on-time payments. If you think a secured personal loan is right for you, shop around and get prequalified. This will help you find the right terms for your needs while minimizing hard inquiries.