Bad credit secured loans - understanding the time factor
14th April 2011
When you take out a secured loan, a repayment plan will be set up where you pay back a set amount each month. This typically runs from a few years to up to 30 years. The most common loan term is 25 years. However, the exact amount of time that you will be given to pay off the loan will vary depending upon a number of factors.“
The Things that Contribute to the Loan Term
One of the main things that a creditor will look at when you apply for a secured loan or a payday loan is the assets that you want to use. What you don’t take into consideration is that various assets lose their value as time increases. Therefore if you would like to secure the loan upon a car, the lender has to take into consideration that in a few years time the car won’t be worth as much as it is now. This can lower the repayment term to just a few years.
If on the other hand you are securing the loan on your home, the house price is very rarely going to have a significant drop in price over the course of the loan. That is when you are typically given up to 30 years to pay it off.
Another factor that will affect the loan term is your current debt load. If you have quite a lot of debt then you may not get accepted for a secured loan. Similarly if you have bad credit you could get turned down for a secured loan. Bad credit loans are much more difficult to get accepted for than standard loans.
With a bad credit loan you also have higher interest rates to contend with. This means that even if you can get a long term loan for a period of up to 25 years, the amount that you end up paying back would be extortionate. That is something that you really need to think about before you apply for a long term secured loan.
If you can afford to pay a lump sum of the loan amount within the first month, then it will really shorten the length of the loan. However, if you do plan to make early repayments then you will need to find out how this will affect you. Some lenders will charge a fee for an early repayment. This is because they want to get as much interest as possible from you. If you pay a lot of the debt off in the first few months they will miss out on year’s worth of interest. For that reason they try to make up for it by charging quite a high early repayment fee.
The shorter the loan term, the higher the repayments will be. However, the shorter the loan term the less interest you will also have to pay. Therefore if you can ay the loan off early then it would be worthwhile. Remember, the length of time you get to ay off your secured loan will vary depending upon the factors above. Never sign a secured loan agreement until you know exactly what you will be paying back.