Understanding Secured Personal Loans

We are constantly encouraged to purchase and consume in today’s society. Every advert and billboard is offering us a lifestyle that we aspire to and we want to buy into it. But this costs and we can’t always afford the price. Don’t worry scream the financial experts, there are plenty of ways of borrowing money or obtaining finance. What they are really saying is, you can buy some money that will let you buy the goods that you want. So we do. We borrow and spend and then borrow some more. However, there comes a time when we have to pay back what we’ve borrowed and that can lead to difficulties. 2008 saw the biggest collapse in the financial markets ever for this very reason. A whole lot of us have debts that we cannot pay back. The consequences to us as individuals who are in debt will depend on the type of arrangement we entered into when we borrowed the money.

What loans have in common is a lender who provides the loan monies and the borrower, who is the recipient of the funds. The lenders charge you for borrowing their money through interest. So typically you will pay back to the lender considerably more than you borrowed over a set period of time. When interest rates are high and the period over which you borrow is long, you will find you pay back more than twice what you have borrowed.

Lenders are concerned that you meet all your payments and will undertake a risk assessment before lending any monies. They want to ensure you do not default and therefore not make all the payments back on the loan. If you fall within their lending criteria, they will offer you the loan, if not you will need to try a different lender. Sometimes, and actually quite often for larger amounts, the lender looks for more security than just relying on you to make your payments. They can get this extra peace of mind by taking a charge over one of your assets. The most common assets used to secure a loan in this fashion are a property or an insurance policy. What this means is, if for some reason you do not maintain your agreed loan repayments, after a suitable period has passed, the lender can seize the asset and sell it to recover their funds. Any excess funds from the sale will be passed back to you. Obviously, to the lender it is an asset, but to you it may be your home.

This form of lending is referred to as a secured loan, since the asset over which the lender holds a charge is their security in the event that the borrower defaults. You need to be very sure of your financial situation before taking on such a loan. The consequences of default in these circumstances is devastating to individuals and their families. Unfortunately, we have been coerced into thinking this is a good way of financing our lifestyles. It is not and 2008 is when the world started paying for being so greedy. The traditional values of saving before you spend still holds much wisdom, even if it prevents capitalists getting rich of our labour in quite the levels they have achieved at the end of the twentieth century.