Consumer debt in the US totals $2.4 trillion.
Debt is not inherently bad, but it can get out of control. If you find yourself in need of cash fast, you might find it tempting to make a decision that will ultimately be bad for your financial health.
Fast cash options like payday loans, cash advance loans, and credit cards come with high interests rates and can get you in a cycle of debt. There's an option to borrow money fast that won't jeopardize your financial future- collateral loans.
Understanding what collateral loans are and how they work can be confusing for many people.
Keep reading for more information on how this type of loan can help you secure funding even if you have less than perfect credit.
What Are Collateral Loans?
When you take out a loan, you have to choose between a secured loan or an unsecured loan.
Unsecured loans do not require collateral and as a result, are difficult to secure and expensive.
A secured loan is also known as a collateral loan. This type of loan requires providing some form of collateral to your lender to secure the loan.
With this type of loan, if you fail to pay back the loan, the lender has the right to take possession of the asset you put up as collateral. This is more risky for the borrower but less risky for the lender.
Because this kind of loan is less of a risk to the lender, they are often less expensive and easier to get approved for.
Examples of Collateral Loans
As described above, collateral loans, or secured loans, are loans that involve the offering of some sort of collateral.
The most common examples of collateral loans are mortgages and auto loans. In these cases, the house and car serve as the collateral. If you don't repay the loan, the lender will take possession of the house or car.
Secured personal loans are also a common type of collateral loan. These types of loans are to fund large purchases or consolidate credit card debt.
Pros and Cons of Collateral Loans
Some of the biggest pros of collateral loans include that you are more likely to get approved for a loan, even if you have less than stellar credit and you might be able to qualify for a larger loan.
Using collateral makes you less of a risk as a borrower and opens up more doors.
Collateral loans also offer short-term liquidity. You can get money quickly without having to go through the process of selling the assets your money is tied up in.
The disadvantages of getting a collateral loan are primarily that you can lose your collateral if you do not repay the loan. You also need to have a valuable asset as collateral to secure the loan in the first place.
If you are looking to learn more about collateral loans for your business, look no further. We can help you secure the funding you need.
Contact us today to start the application process.