Secured debts
In order to know about Secured Debts, it is also necessary to know about Unsecured Debts. Secured Debts are debts that are secured with collateral of some type(car loans and mortgages for example). Collateral can be cash or the item you have a loan for itself. In other words, it can be forclosed on or repossesed. Plus it can often be resold and the creditor is able to recoup all or most losses. Also with Secured Debts you lose the ability to have the debt discharged in bankruptcy in most cases.
These days there are even secured credit cards for folks with poor credit. These are a pay before you spend cards. The creditor is assured of complete payment and the user has the convenience of a credit card. What you pay in, is typically your limit.
Unsecured debt:
Unsecured debt is typically a credit card/account with revolving credit. The card was not secured for the sole purpose of buying property that the creditor can liquidate later if you default on the payments/loan. They have no assurance, other than your agreement to repay them on their terms, that they will get paid. They can't come take your car or house to make you pay your credit card bill, they must attempt to collect first. These types of loans can typically be discharged in bankruptcy.
Some important facts about secured debt:
• Secured debt is possible only if you have something to pledge. This means that you should have something physically available that you can pledge like your home, a car, secured bonds etc.
• Secured debt ensures that you get a good enough deal in terms of interest rates. This is true because you are keeping something of value as a security in the hands of the lender as a reassurance to him as safety of his money.
• Secured debt is valid for multiple debts too so that you can combine a variety of debts like credit card debts, to meet medical expense bills etc.
• Secured debt helps you to greatly restrict your monthly expenses than when you were having a number of loans at different rates of interest and other borrowing terms.
• Secured debt consolidation allows you to choose a monthly installment that suits your pocket. If you still find that, for the amounts you are faced with, your monthly expenses is coming considerably high then secured debt consolidation provides you with the solution of stretching your loan term. This loan term will be stretched till you reach a monthly installment that you are comfortable with.
Benefits of Secured Debts:
1. Many companies like secured consolidation loans are better because they know they can get their money back no matter if you pay off the loan or they have to repossess what you put up as collateral.
2. Consolidation companies are more eager to have your business because of this and will offer better terms than an unsecured debt consolidation. In fact it is possible to get a lower interest rate, making it easier to pay off the debt faster, and more flexible terms, which again could help make it easier to pay off faster.
3. Even people with bad credit can get a secured debt consolidation loan. They won't get as good an interest rate as those with better credit, but the rate may still be much lower than what they currently are paying.
4. The biggest advantage of a secured consolidation debt loan is avoiding bankruptcy. The lower payment and interest rate can definitely help those whose budgets are stretched to the breaking point, giving them monetary relief for other necessities. Planning for one larger payment per month instead of several smaller ones weekly can also help with budgeting money for food, rent, and other living expenses. This gives one a sense of hope for the future and a debt-free life.
Limitations of Secured Debts
Secured lendersXwhove loaned money thats backed by specific collateralXare not always so flexible. If you fall behind on the payments for a secured loan on a house, auto or boat, youre in danger of having the property seized by the lender.
In the case of real estate, that means foreclosure. In the case of a car, truck or boat, that means repossession. Foreclosures and repos are the worst marks that you can have on your credit. You should do everything that you can to avoid them.
If youre having trouble making the payments on your home, contact the lender. The sooner you say something, the better the chance that the lender will work with you to avoid foreclosure.
Foreclosures cause almost as much trouble for the lender as they do for the borrower. Among other problems, a large number of foreclosures will call regulatory attention to a bank or lender. And no bank likes that kind of attention.
A mortgage lender may reduce or even excuse your payments for a short period of time. However, once you start making regular payments again, you probably will have to pay extra to cover the past-due amount.
Another possibility: The lender may extend the repayment period on your loanXbasically, tacking missed payments onto the end of the schedule.
Either of these solutions will probably involve some form of fee or penalty; but these fees will usually be a bargain compared to the higher interest youll have to pay on everything if you have a foreclosure on your credit report.
Many finance companies specialize in refinancing home loans for people who are having money problems. In these cases, you may end up paying a higher interest rate over a longer period of timeXboth bad ideas. But a refi can bring your loan current and buy you time to get past temporary problems. As long as those problems are temporary.
If you cant work out a payment schedule with your lender or another finance company, youll want to contact a housing counseling agency. You can find an agency through your local Department of Housing and Urban Development office (you can get a list of these on-line at www.hud.gov) or through your local city of county housing authority.
Depending on where you live and the value of your house, there may be a government program that can get you a short-term loan to make your payments or refinance your existing loan.
As a last resort, selling your home usually is preferable to letting it go into foreclosureXat least from a credit score standpoint.
In some situations, though, you cant sell the house for enough to pay off your loans. If youre in this position, ask your current lender to refinance your loan to bring your payments current. Show the lender comparative sales of similar houses in your area and any other proof you have of what homes are fetching.
Emphasize that you want to avoid foreclosure and stay put until prices rise again.
One critical note: Foreclosure doesnt mean that you automatically lose your house. In most cases, you can negotiate terms for reinstatement of your loan after the foreclosure process has begun.
With most lenders, a different group of employees manage foreclosure accounts. If your house really wont bring as much in a sale as you owe on it, the foreclosure staff may be more open to setting up a reinstatement program that will allow you to bring the loan current over a period of time.
As with collections and charge-offs, a foreclosure that you get reinstated will still show up on your credit report for seven years. But it will show that the loan was reinstated which (like a paid charge-off) reduces the damage.
Of course, bringing a mortgage current or getting it reinstated out of foreclosure will require enough income to make timely payments. If you dont have that income and the house wont sell for what you owe, you may have little choice but to walk away. That means allowing foreclosure to proceed and moving out before the lender evicts you.
Some credit counsellors suggest walking away from a mortgage as a hard-nosed or realistic approach to resolving an over-leveraged real estate investment. But it does serious damage to your credit; and, if the bank cant recover the full amount of its loan to you when it sells the property, it can still sue you for the balance. Then, you would have both a foreclosure and a legal judgment on your credit. Its better to screw up your courage and negotiate a deal with the bank before going into foreclosure.
These renegotiated dealsXwhen made early enough, before foreclosureXmay not show up in any form as a black mark on your credit. Thats the main reason to make the telephone call to the secured lender before they make a collection call to you.
Likewise, if you fall behind in your car payments, the finance company that helped you buy the vehicle may repossess it.
As with real estate, car lenders dont like to repo vehicles. If you call the finance company when youre still current or just 30 days late on your payments, you can often negotiate a deal to reschedule payments or extend your existing loan.
Auto finance companies are sometimes less organized about reporting late payments and repossessions than mortgage companies are about reporting foreclosures. If you act quickly to remedy a repo, there is some chance that you can fix the problem before its reported to the credit bureaus. Make sure to ask the finance company about thisXand get a written assurance that the repo hasnt been reported, as part of your reinstatement agreement.
If you dont get a repossessed car back, the lender most likely will sell the vehicle. And, as with a foreclosed property, you still may not be off the hook. If the lender sells the car for less than what you owe, you are still liable for the difference.
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