When there’s nowhere else to turn to, we go for a secured personal loan. A secured personal loan requires a collateral which most people try to avoid. Collateral refers to assets you mortgage for a loan, such as a house, land, car, savings, or car that serves as warranties for the money you borrowed from the bank. But getting a personal loan in the Philippines won’t be easy as a pie. So, while you have decided to get a secured loan, GoBear is here to help you understand secured loans deeper.

What are the advantages of secured loans? 

People who have possessions to offer as collateral enjoy the following benefits:

  • Huge loan amount. Secured loans are maximized with higher borrowing limits commonly the same value with your collateral. If you need money to set up a small business or renovate your home, then this kind of loan best fit the amount of money you need to loan. Some people with properties risk this kind of loan to fund larger businesses.

  • Longer payment terms. Loans with collateral can be paid within 5-20 years. Longer payment periods give you the chance to pay lower instalments. This can be helpful when trying to spread your money to cover different bills. But, you have to keep in mind that longer payment terms mean increased interest rates paid accordingly.

  • Easy approval. Lenders can approve your loan application instantly since you have properties that can serve as payment guarantee whenever you are taking out a loan. It doesn’t matter if you have a high or low credit scores, as long as you have a collateral.

What are the disadvantages of secured loans?

Since secured loans need a collateral, you can borrow a higher loanable amount compared to unsecured loans. They also come with a flexible loan tenure – as early as 3 months or as long as 36 months. However, this risks you losing your collateral if you miss a payment. You mind end up losing the money or car you used as a collateral.

Another disadvantage of a secured personal loan is the varied interest rates. Some banks enforce variable rates so the interest fees you pay for the first year might be lower than the charges in the succeeding years. There are online personal loan calculators to help you compute variable interest rates and compare the difference.

What assets can be used as collateral?

Before you apply for a loan, check whether you have any of the followings to present as a guarantee:

  • Home or any real estate property – A piece of land or your home can serve as collateral.

  • Investments – Stocks and shares can be used as collateral. If you have investments in banks or other lending companies, expect that you might be offered with secured loans, in which the loanable amount can be equal to the investment value. If your investment dips low, then your lender can ask for additional money to pay off the difference.

  • Vehicle – Any type of vehicle - a car, truck or a boat can be used as security for lenders in car equity loans. It is an easy way out of money problems but borrowers should be cautious about shorter repayment periods and higher APRs.

  • Savings – Banks and credit unions offer their existing clients with savings-secured loans. Borrowers can enjoy earning interest for their deposits while using those as collateral for loans. It may sound great but the interest rates entailed with the deposit are much lower than the rates for the loan. The wiser move is to pull out the deposit and use it than get a loan and be burdened with high interest charges.

What are the other things you should know about Secured Loan?

There are different types of secured loans and each requires different things from the borrower and lender. But no matter how different each type of secured loans are, there are a few things they all have in common.

  • APR or annual percentage rate is the amount of money charged for borrowing. The APR will vary for each type of secured loan available. But the APR mostly depend on your credit history and the amount of equity available in the collateral. If you have a bad credit history as well as the less amount of equity (value of the property that doesn’t have a loan against it), you will have a higher APR. The higher the interest rate is, the greater money you will be repaying each month.

  • The amount of money you are going to loan will affect your payment account. There will be a structured repayment schedule that is calculated before the loan is signed for (with all the details, like loan length in years, payment date and amount) given to the debtor in writing

Taking out a loan can be a financial rescue or put you on a debt. Make smart decisions by comparing personal loans with GoBear today!


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