Borrowing money is a major step that many people need to take at some point in their lives.
But, there are many misconceptions people have about it, which can make taking out a loan a daunting experience.
In particular, secured loans have a wealth of false information circulating online. This could result in many people being reluctant to take out this type of loan when they actually need it.
For this reason, we are going to address some of the common misconceptions, to ensure that people have all the knowledge they need to make informed decisions.
1. Their only purpose is debt consolidation
It is a common belief that only people who need to consolidate debt can use this option.
Although this is one of the primary purposes of this type of loan, it is not the sole use.
They can be used for multiple different reasons including debt consolidation, big purchases, home improvement projects, funding a wedding, paying tax bills and any other legal purpose.
2. They are primarily for people with adverse credit
With a secured loan, your property is used as security, which helps to reduce the level of financial risk to the lender.
Due to this, many people hold the assumption that these loans are only for people who are a higher financial risk to lenders, including those who have adverse credit.
In fact, they can be used by any person who is eligible and passes the lender’s criteria.
3. You should accept the highest amount of money offered to you
Brokers and lenders will carefully assess your circumstances and ability to repay the loan, now and into the future, to determine how much they should lend to you.
Therefore, the loan offered can sometimes be higher or lower than the amount of money you need. It is important to only borrow the amount required.
4. Your credit history cannot be improved
Another misconception that circulates is that once your credit history is damaged, it cannot be improved in the future. This is entirely false.
You can take a variety of steps to improve your credit history and diminish any negative marks from the past.
One of the main ways you can help avoid any more credit issues is by making all credit repayments on time.
Although this process may take some time and will not be an overnight fix, it can be achieved.
5. There are hidden fees and costs involved
The rules for selling secured loans are similar to your first mortgage. So, the lender must clearly show any fees and costs when you take out this loan. Therefore, the belief that there are lots of hidden fees and costs is untrue.
Summary
Overall, there are many different beliefs people hold about borrowing money, particularly when it comes to secured loans.
As this blog has highlighted, many of these assumptions are false. So, it is important when taking out any type of loan, to make sure you research beforehand and ensure you understand what you are doing.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
