How To Secure Loans and Lines of Credit With Your Own Money
By Gary Aaron on The Capital
Qualifying for loans, credit cards, and other lines of credit can be a daunting task when you have bad or no credit. Lenders are less likely to approve you for loans and even if they do the interest rates for people with subpar credit can often be less than desirable. In these situations, it may be wise to consider getting a secured loan or line of credit to start building up your credit.
What is a Secured Loan?
A secured loan is a loan that is backed by collateral such as an account, vehicle, or home. Secured loans are generally easier to get approved for because the lender can collect on the collateral put up for the loan if the borrower is unable to pay it back. Interest rates for secured loans are also much lower than those of unsecured loans. Using this method you can get a loan and also build your credit enough to get an unsecured loan in the future. Secured credit cards and secured lines of credit work in similar fashions.
What is a secured credit card
Just like a secured loan, a secured credit card is acquired by using collateral; in this case, your own money. It is easier to get approved for than a regular credit card and the rates are much more desirable as well. You are also able to control your credit line depending on the amount of money you use as collateral. This is not something you are able to do with unsecured credit cards as the credit card company will be the one who sets the limit.
What are the risks???
Honestly, the only risk involved in secured loans and credit is the loss of the collateral used. If you are unable to pay back a secured loan you will risk losing the collateral you put up; in some cases that can mean people losing their homes’, cars, or the money in their savings account! To combat this NEVER use something as collateral you aren’t prepared to lose. Other than that secured loans and secured credit cards are a great way of getting started on your credit journey if you are unable to get traditional unsecured loans or lines of credit. Make sure you make your payments on time and it will be a great building block in your financial journey.
