Homeowners – Here’s Everything You Need to Know About Secured Loans
For this post, we’ve teamed up with our partners at Fairstone.
Owning a home has its perks, especially if you need to borrow money. Homeowners can use the equity in their home to access additional borrowing options: mortgage refinancing, secured lines of credit, secured personal loans, and more.
Our partners at Fairstone shared some information about secured personal loans, and why you may want to consider one if you’re a homeowner.
What are the benefits of a secured personal loan?
A secured personal loan can help you qualify for a lower interest rate compared to an unsecured personal loan. Because the loan is secured against collateral (your house), there’s a greater guarantee you’ll pay off your loan and make payments on time. As a result, your lender will feel confident offering you a lower interest rate, which will save you money over the course of the loan.
You may also qualify for more money by securing your loan. At Fairstone, you can qualify for up to $30,000 with a secured loan. A larger loan amount can be especially helpful if you’re borrowing money to re-invest in your home (whether it’s for emergency repairs or a planned renovation) since renovations can require a lot of money upfront.
Lastly, a secured loan may offer a longer repayment term. At Fairstone, you can take up to 10 years to pay back your secured loan. A longer repayment term gives you greater flexibility and lends itself to a more affordable loan payment. Lower loan payments can fit more easily in any budget and may be more manageable – helping you stay on track with loan payments (and rebuild your credit over time).
Are there any downsides to a secured personal loan?
Here are a couple of reasons a homeowner might choose an unsecured loan instead of a secured loan:
- The application process for a secured loan takes a bit longer: Your lender will have to do some paperwork to determine the value of your home. If you need money the same day you apply, an unsecured loan may be a better option. However, if you can wait a bit longer for your loan, we always recommend choosing to secure it so you can get the best interest rate possible.
- You can pay off your loan early, but there’s a fee for doing so: Some people like to have the flexibility of paying off their loan before the end of their term. At Fairstone, you can pay off your secured loan early, but there is a fee for doing so (the fee amount varies depending on loan amount). With an unsecured loan from Fairstone, there are no charges for early repayment.
Why should I choose a secured personal loan over other types of homeowner financing?
A secured personal loan is an installment loan – a loan that is repaid over a set period of time through regular, fixed payments (or installments). Installment loans lend themselves to more manageable debt repayment since your loan payment stays the same every month. Plus, your interest rate and loan term are fixed for the life of your loan, meaning you never have to wonder if your loan payment will go up.
When it comes to installment loans, part of the loan payment will go toward interest, and another part of the loan payment will go toward your principle. With every loan payment you make, a bit more money is allocated towards principle rather than interest.
On the other hand, a secured line of credit will still offer a low-interest rate, but you won’t have set payments. You’ll have to make minimum payments on your balance to prevent your credit score from dropping, but it’s up to you to decide how much money you put towards the line of credit each month – the lender does not decide a set period of time for when the debt needs to be paid back (other than monthly minimum payments). This more fluid approach works for some people, but if you benefit from a schedule, revolving credit may not be for you.
Then, some people may choose to refinance their mortgage. Mortgage refinancing allows you to borrow money in the process since it frees up some of the equity in your house. Some people may qualify for a lower interest rate when refinancing their mortgage, making it a convenient option to borrow money. However, sometimes a lower interest rate isn’t available. Or, it could be too expensive and difficult to refinance if you’re locked into your mortgage term. In this case, you would have to look at other borrowing options.
It can be a tricky decision when choosing how and where to borrow money. Luckily, as a homeowner, you have several options to choose from that help you qualify for lower interest rates and more money.
Are you wondering if a secured personal loan is right for you? You can get a free loan quote from Fairstone telling you how much money you could qualify for, and what your payments might be. No obligation, no impact on your credit score. Plus, it only takes a few minutes!