Are you in a situation that requires a lot of money? Well, a personal loan might not be one of the options on the table. The lender might also be reluctant if your credit score is very poor. The best option is going for a secured loan. This is a credit taken against a major asset such as car or house. In this post, we look at the most useful tips when taking a secured loan.
Only borrow what you need
Unlike the payday loans, secured loans are advanced based on the value of the collateral. Often, many people make the mistake of taking more because the collateral has a bigger value and the lender is willing. You should only borrow the needed cash and not the entire equity of the collateral. If you want to start a business, calculate carefully to understand the amount needed. Then, borrow only what you need and not the total amount that the lender is willing to release.
Be on the lookout for hidden charges
Depending on the lender you go to, some secured loans can have hidden charges. These are the charges in addition to the main interest on the loan. You need to be vigilant to avoid paying more than the agreed interest. You should particularly look for charges associated with early repayment of the loan. If you can repay a loan in half the agreed time, it should not be a reason for punishment. The only thing that the lender should insist on is that the amount paid is equal to what was agreed if you paid the loan over the entire repayment period.
Try to make the repayment period as short as possible
The longer you take with a loan, the higher the interest. Even if the lender charged a very low-interest rate of 6%, taking more months means you will pay more. To keep the interest as low as possible, go for a short repayment period. With a shorter repayment session, you are sure of avoiding fatigue that develops over time.
Negotiate for lower interest rates
Many people looking for loans often argue that interest rates are fixed and cannot be adjusted. This is a misconception. The lenders are in business and will do anything to keep clients (borrowers) in their businesses. You should, therefore, take this advantage to negotiate for lower interest rates. Do not just take what is put on the paper; negotiate to have the rates revised down with a few points. For example, if the lender has pegged the interest rates at 9.5%, negotiate to have the rate brought down by 0.5%-1%.
Have a well-defined repayment plan
Even before you head to the lender asking for a loan, it is important to have a clear repayment plan. This an essential component that helps in the following ways;
- Demonstrating personal commitment to repaying the loan
- Adopting good budgetary practices
- Focusing on creating new lines of revenue
- Balancing the secure loan with other lines of credit
- Helping to improve personal credit score