With banks and credit unions becoming more selective with the funds that they loan, requiring a secured property loan is becoming the rule rather than the exception. They have been stung by so many bad loans that even someone with good credit finds it difficult to obtain a loan without putting up some kind of collateral.
Is collateral always required for a loan?
In the past, it was easy to get a personal loan if your credit was at least fair, but those days are long gone. With so many people defaulting on loans today, including those who previously had good credit, lenders are becoming less likely to approve a loan for anyone without collateral. There are exceptions, of course, but personal loans without security are reserved for the exceptional customers who have been done business with a particular lender for many years. Unless you fall into that category, you will more than likely have to enter into a secured property loan. Some lenders may make exceptions if the loan is under a certain amount, but that is a decision that will be up to the individual lender and loan officer.
What collateral is usually pledged?
In most cases, the lender wants collateral that holds value and is easy to sell in the event of a default. For that reason the collateral pledged for a secured property loan is usually real estate or a motor vehicle (car, truck, motor home). Sometimes a lender will also accept a boat, but personal property such as furniture is not usually acceptable except when it is financed at the store where it is purchased. Furniture loses its value so quickly because of everyday wear that lenders don’t consider it a stable source of collateral for a secured property loan. It is also very easy to sell because there is no proof of ownership required as there is with real estate, motor vehicles, and boats, and as such, it’s more difficult for the lender to maintain control over his collateral.
Will a lender release a lien before the loan is paid in full?
This does occasionally happen if the reason for the secured property loan was because of poor credit or other financial instability and the borrower has proven himself to the lender. It’s important to keep in mind that this happens very rarely, so it is not something that you should consider a possibility. In most cases, once your secured property loan is executed, your property belongs to the lender until the loan is paid in full. Even if the value of the property pledged decreases in value, the lender still stands to recover some of his money in a foreclosure or repossession. He will then find other ways to collect the deficiency balance. For the borrower who has had credit issues in the past, this will add serious negative notations on the credit report since it is a repossession with a charged off balance. To avoid this happening, make your payments on time, and if you do have a problem because of unforeseen circumstances, contact the lender and let him know so that you can make arrangements with the lender.
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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.