Personal loans are a great asset when one is in need of financial aid for whatever reason. A secured personal loan is a type of loan where the borrower is required to provide some assurance that they will pay back the loan. This assurance is referred to as collateral, and may be a car, a piece of land, or rental apartments. The reason why one has to give collateral is due to the risk that is involved in issuing such a loan on the part of the lender. There are advantages and disadvantages of getting a secured loan, as will be discussed later.

The high risk mentioned, and which lenders have to put into consideration revolves around a number of things. One of the most common includes borrowers who have an unsteady source of income, particularly those who are self employed. The rationale here is that the lender or the financial institution can see the effort that you are making; it is simply that the income is not as regular as what one who is employed gets. In such a case, the choice to give a loan is dependent on the period of time one has been in business (self employed), the size of the loan one is seeking as well as the institution’s policies.

Other parameters that may be used in determining the risks involved include poor credit ratings as well as a history marred by loans that have been defaulted. Poor credit ratings may be attributed to the lack of financial discipline or tragic events which one had no control over. Depending on the epicenter of such a scenario, a number of people think it is not justified to punish someone for poor decisions in the past. While it is a tad unnerving not to be able to get a loan as a result, it is really a question of knowing how to manage one’s finances prior to a loan application.

Whichever way, the chance of getting a secured personal loan should be an opportunity to redeem one’s self for the sake of future loan applications. Your credit history will be the point that could either make your application successful, or make it a total flop. In fact, a secured loan that is paid back on schedule or before schedule is the quickest way to charting a new credit rating scheme for yourself. Such a loan also makes it possible for those who would not qualify for other loans to get financial aid.

On the opposite end of the spectrum, secured personal loans can be a living nightmare as they are very risky. It is therefore important for a borrower to clearly comprehend the terms and conditions as well as the risk involved. Seeing as you are required to provide collateral, defaulting on the loan means that you lose whatever collateral you had presented. The risk comes in at this point because no one foresees the loss of their collateral, and it is very disheartening when the lender shows up to pick what is theirs once the repayment period has elapsed.

To reduce the probability of these risks, it is important to be brutally honest with yourself when applying for such a loan. Why do you need the loan? Is it a matter of urgency or are there other methods which can be used? If you know you have a problem meeting your financial obligations, it would be unwise to add the burden of an unsecured loan. The amount of loan you get should be able to meet your needs adequately. This means that if, for instance you would like to borrow just $2500, and the lender coerces you to borrowing more by letting you know they can allow up to $20000, it is financial maturity to decline the offer. While secured personal loans are an awesome way of creating revenue, one should exercise caution to prevent the loss of the asset(s) given as collateral.