Collateral placed acts as a security to the lender and also balances the risk of lending an amount. Through collateral, the lender feels secure and offers a lower annual percentage rate. This in turn, also lowers the outgoing of money of the borrower. As the result of this he is able to save more for his future.
Being the most common personal loan, majority of the lenders provide the secured loan. Lenders can be broadly classified into following categories:
Specialist loan providers
If we try to evaluate each and every lender then banks and building societies are the most traditional way of getting a loan. On the other hand, a broker does not provide loan directly. Broker is just an intermediary between the lender and the borrower seeking a loan. And specialist loan providers are the lenders who only provide a specific loan. In simple terms, specialist loan providers cater to specific borrowers such as bad credit borrowers or deal with only secured loan or personal loan, as the case may be.
It is generally seen that the people prefer going to a broker rather than going to financial institution or banks. The reason behind this is that the banks and financial institutions conduct various formalities in providing the loan. And broker being an intermediary performs all the formalities on behalf of the borrower. Through this the borrower gets free from all the formalities. Involvement of broker also leads to the quicker approval of the loan.
Despite of various advantages, which the secured loan offers such as lower rate of interest, longer repayment period and quicker approval, another aspect of secured loan is the risk involved in it. Here risk is associated with the property. And it increases, when the person is not sure regarding the repayments of loan.
On the occasion when the borrower misses any payment, the lender seizes the property in order to realize the payment from the borrower. Not only the property is in danger but also it adversely affects the credit score of a person; as a result of which he may find difficulty in availing the loan in future.
Thus, when the person decides to avail the secured loan, the person should consider both, the positive and the negative aspects of secured loan. And before going for secured loan also compare it with other sources of finance and then only come to a conclusion.
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