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Secured Loans – What Can You Lose?By John Mussi |
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Secured Loans, also known as collateral loans, are by far the most standard type of loan available. Home and car loans are the most prevalent secured loans, and many people have at least one and often several of each. When buying furniture on credit, from either a department store or a furniture outlet, this is another form of a secured loan.
A secured loan is simply a loan where the consumer signs away the rights of something of equal value to the money received. A mortgage is a loan where the house itself is the collateral for the money loaned to purchase the home. Car loans work on the same principal; the car is the collateral for the loaned amount of the payments.
Other Types of Secured Loans
Furniture outlets and rent to own businesses offer merchandise using the secured loan model. As are boats, motorcycles, ATV’s and other big ticket items are generally sold by the same method. Finance companies often require some sort of collateral before they will issue a personal loan.
What Can You Lose?
While most lenders, such as banks or larger financial institutions will allow several missed payments before instigating repossession or foreclosure procedures, few will allow more than ninety days without payment.
Everyone has seen the old joke in movies about the Repo Man. In reality, this is not a joke at all, the Repo Man exists and repossession can occur anytime you are in default of your loan. Depending on the terms of the contract you signed for the loan, the Repo Man can show up at your door within days of missing a payment. This is especially true of vehicles purchased at small car lots that finance the loan themselves.
Often, when a loan account is in default, the lender will demand all back payments or the entire balance to be paid before halting the repossession process. This can, and often does, force the consumer into bankruptcy in order to avoid losing everything. New bankruptcy laws make filing more difficult today than in years past.
Not only can you lose your home or vehicle when defaulting on a secured loan, it also reflects adversely on your credit rating. One default and repossession can affect your ability to successfully secure another loan at a later time.
How to Avoid Losing What You Have
Before applying for a loan of any type, make sure you can afford the payments. Sit down and work out a budget; understand exactly the amount of money you have coming in each month and know exactly the amount of cash you are spending. The key to having financial freedom is never over extending yourself on any type of loan.
You may freely reprint this article provided the following author's biography (including the live URL link) remains intact: |
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About the Author |
| John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website. |
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