Bad credit record is pretty common these days due to various factors. In spite of working hard at keeping a clean credit record, most often individuals lose control and go overboard with their spending habits and fail to keep track. Once they are into the debt cycle they soon realize that they are lagging behind payment schedules and have problems in repaying loans. In a short span of time, they find themselves victims of a bad credit record.
Having a bad credit has much more disadvantages than one would imagine. As if that were not enough, there are more and more people who fall back on bad credit secured loans. Due to the high living costs and the dearth of good jobs, it is but natural for individuals to fall prey to not only bad credit but bad credit secured loans as well.
What are bad credit secured loans?
These are secured loans that people avail to get out of embarrassing situations such as bad credit. Generally, these loans are availed by those who have a bad credit history or no credit history at all. This loan is availed after securing property or assets that are equivalent or more in value. The lending company keeps the asset as security and lends the amount on the basis of this security. The lender has a security backup in case the individual defaults on payment.
Why is it a bad option?
While this option may sound good for someone who wishes to rebuild their credit, one of the main drawbacks is that these kinds of loans are pretty expensive. The interest rates will in all likelihood be much higher when compared to regular conventional loans. Sometimes an auto loan may cost upwards of 20%. There are a number of hidden charges and fees that are a common feature of this bad credit secured loans. Hence one has to read the fine print before availing this loan, as there are fees such as fees for early payment, increase in interest rates even if there is a delay in one payment.
If one is not cautious with this kind of loan, one would end up losing the property that is secured, especially in case of a foreclosure or default in payments. This would also destroy the credit rating further. The bottom-line is that maintaining financial discipline is a prerequisite to avail a bad credit secured loan and not otherwise.