Finances, House Payments, and Getting a Secured Loan

Michelle Tuvey Michelle Tuvey | Loan Underwriter

It has long been said that the only two things in life that are guaranteed are death and taxes. Whether that's true on its own merits is one thing, but there are quite a few additional things that are pretty much guaranteed. One example is the reality of housing payments. You either pay for housing, live with someone else who will make the payments for you, or live on the street. Irrespective of your personal finances, house payments are a reality of life.

That reality leads us to the question of getting a secured loan in light of personal finances and house payments. How does one get a secured loan? What is it dependent on? And how do personal finances play into the borrower's eligibility? These are all questions we will endeavour to answer in this pos

How Does One Get a Secured Loan?

Let us get start by defining a secured loan and explaining how to get one. A secured loan is a loan offered by banks in exchange for collateral that secures the loan. In nearly every case, collateral is the equity in the borrower's existing property. A homeowner borrows against that equity with the expectation that the lender can repossess his or her property in the event of default.

As for how to get a secured loan, the process is relatively straightforward. A borrower shops around to find the best possible deals based on interest rates, loan-to-value ratios, and other charges. Once the borrower settles on a loan, application is made to the lender who follows up with either acceptance or denial.

What Does a Secured Loan Depend On?

Getting a secured loan depends on a number of important factors. The first is the borrower's income as opposed to his/her outlay. In simple terms, a borrower has to be able to afford a loan before the lender makes it. That is basic banking 101. In addition, it must be understood that monthly loan payments will be in addition to regular house payments once a secured loan is accepted.

How Do Personal Finances Affect Eligibility?

After the housing crash and financial crisis, the government implemented new rules for determining loan eligibility. Lenders must now conduct a strictly defined review of the borrower's financial situation to ensure a loan can truly be afforded. This applies equally whether the consumer is trying to get a first mortgage or a secured loan.

Stricter lending requirements involve lenders looking at personal finances, house payments, car and credit card payments, employment history, expected future income, and more. Rest assured that banks go to great lengths to uncover every stone in an attempt to erase all doubt that a borrower can afford to borrow.

Knowing this, the consumer's personal finances play a significant role in determining loan eligibility. On the one hand, secured loans are easier to get for people with poor credit histories because there is collateral involved. On the other hand, a lender will still be hard-pressed to offer a loan to someone whose past (financial) history and current circumstances suggest too great a risk.

What Can Borrowers Do?

The best thing borrowers can do for themselves is to remain diligent about preserving their credit histories and scores. That means paying bills on time, not borrowing more than you can truly afford to pay back, making a point to put something away in savings, and not continually jumping from one job to the next. Stability in one's personal finances and house payments goes a long way toward building a credible profile that makes lenders more willing to lend.

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