Are you thinking of getting a loan, but scared by interest rates? Maybe you might be interested in taking out a home equity loan. But take it easy: first of all, read this text to learn about the advantages and disadvantages of this type of transaction.
Borrowing is not a sin
Often people are afraid to make a loan with the bank because they have a debt that will have to be managed with attention.
However, there may be several reasons for getting a loan. It may be the purchase or construction of a property, the opening of a business of its own, or even momentary situations of financial need.
Borrowing from banks and other financial institutions is a common procedure. But whoever gets the loan needs to be aware of the deadlines and interest rates. The problem is that interest is often high and deadlines are short. With this, you end up paying considerably more than you borrowed.
However, there is the possibility of opting for a secured loan. This modality of credit presents advantages and risks, as we will see next.
Loan with property guarantee
This type of loan may not yet be known to Brazilians, but it is very common in the United States and other countries. As the name says, in this type of transaction, the person who receives the loan offers a property of his property as collateral, in case of non-payment.
Another name for the secured loan is mortgage. We say that a person mortgaged their home when they offered the property as collateral for taking out a loan. Because of this guarantee offered, it is possible to obtain low interest rates and longer terms.
On the other hand, in case of default, there is a possibility that the bank may take the property or vehicle of the person. Complicated, is not it? So before deciding to take out a secured loan, well evaluate the risks involved, to make sure that you can keep up with the payments on time.
Advantages of a secured loan
As mentioned above, the main advantages of a secured loan are low interest rates and long terms. The interest involved in this type of loan usually varies in the house of 1% or 2% per month. It is considerably lower than the interest charged on most credit operations.
As for the deadlines for discharge of debt, they can reach 20 years. Another advantage of home equity loan is that it is possible to get high value loans.
The main disadvantage refers to the risk of, in case of default, the bank take the home of the person who made the loan.
If the person delays payment of the debt, there is a possibility that the bank will file an action and request the materialization of the asset offered as collateral.
Usually, the bank places this property in an auction, with the purpose of raising capital to pay off the debt.
So, we can say that in “secured loan”, the “guarantee” is only for the bank…
Why is the interest on a secured loan smaller?
When banks and other financial institutions determine the interest to be charged when granting a loan, they calculate the probability of not receiving back the loan amount.
This probability, called default risk, takes into account the entire flow of operations of the institution. Therefore, there is always a part of the interest rate on loans that are not paid – even if you pay your day.
When a person offers as collateral a vehicle or a property, the bank has the security of, in case the person does not pay the installments, can take this property and sell it to recover the money.
In addition, the person who took the loan will always strive to repay the installments of that debt. This is because she does not want to lose the good she offered as collateral. Thus, in this type of loan, the risk of default for the bank is lower. Therefore, it may charge lower interest.
How to apply for a secured loan?
The first thing you need to take out a home equity loan is, of course, to own a property in your name. This property must be with the documentation fully regularized and preferably with all parcels removed.
To apply for a secured loan, you should look for a bank or financial institution. Then enter the amount you wish to borrow and fill out a registration form. You will need your personal documents and documents of the property offered, such as the deed of the property.
Then there will be a credit analysis, followed by an evaluation of the good offered as collateral. The valuation will guide the amount that can be borrowed. Generally, this value can reach 60% of the value of the property evaluated.
What happens if I am owed?
Payment of installments can not be delayed for more than a certain period, which is usually 30 to 90 days. If this occurs, the bank may file an action to take the good offered as collateral. Although the offer of a property constitutes a guarantee for the bank, it is not interesting for him to keep these assets.
For the bank, it is better to receive money than to have to file a lawsuit, seize the good, put it up for auction, and at the risk of not being able to sell it. Therefore, before reaching the final consequences, the bank will always try to reach agreement with the person, to pay the remaining installment.
So if you owe it, try to renegotiate the debt with the bank : this will be interesting for both parties. If an agreement is not reached, then the bank will take the appropriate measures to seize your property in order to auction it to pay your debt.
Do not let this happen! Plan, organize, and everything will work out!