When you’re taking a loan, your intention is to pay it back as per the offer. However, the unexpected happens and you’re not able to meet your part of the obligation.
Secured loans are attached to your home as security. If you’re unable to pay, the lender can apply to the courts, sell your home and recover their money.
With secured loans, the risk is low, and therefore, the loans are offered at a lower interest rate. You can also borrow more than you would qualify for through a personal loan.
What’s a Secured Loan?
This is a loan attached to your property or home. If you cannot pay the debt, the lender has the right to repossess your property.
As mentioned above, it’s easy for lenders to give you a higher amount with a secured loan than you would ordinarily qualify for.
That often turns out to be a challenge if you fail to pay your debt.
If you cannot pay your secured loan, you must talk to your lender the soonest time possible. That way, you can put an affordable arrangement in place and reduce the risk of losing the property your loan is secured against.
These five tips will help you pay back a secured loan you’re struggling with and avoid stress.
Talking To Your Lender
Talking to your lender is the foremost thing you need to do when you have a problem repaying your loan. It may be embarrassing talking about your money woes with strangers, but the lender can come to your rescue when in financial difficulty.
If you feel you’re going to miss a payment for one reason or another, then it’s prudent you contact the lender in advance. That will help you avoid any dire consequences. Explain your predicament to the lender and let them advise you on what to do. They may agree on a reduced repayment, a freeze on interest and charges until you’re in a stable financial position.
Tighten your Financial Belt
When things are not working out financially, you’ve to engage another gear, and the first thing you do is review your spending.
Find below ways you can trim your budget with little effort;
Cut down the Cost of Energy: Turn those lights off, shorten your showers; do more during the non-peak hours.
Pause on Groceries: Check your last month’s bank statement; what is it you paid for without thinking? Is it Amazon Prime, Netflix, and others that add up so fast? Remember you’re cutting them to reduce your expenses for the time being, and then you can pick them up later once you get financially stable. You may even find out that you didn’t need them in the first place, and they were the reason for your current situation.
Though your lender may even lessen things for you, so your problem is solved, kindly consider adjusting to your new budget. It’s an opportunity for you to save and work out on an emergency fund. Thus, in case a financial storm hits another round, you’ll be ready to take it head-on.
Consolidate Your Debt
You are suffering financial downtime because of the many loans you have with the same or different lenders. You may therefore need to do debt consolidation. That would mean you get a new loan facility and clear off the smaller debts. Managing a single debt is relatively easy- and you suffer only a single interest, unlike when you’re several debts.
When you merge your loan balances, you may opt for a personal loan instead. With unsecured loans, your properties are not tied to the debt and thus less risk involved.
But before you decide on consolidating your loans through refinancing, think of the early repayment charges that may apply. Again, find out about the loan term and the interest rate- personal loans have higher interest rates than secured.
Before you sign the refinance document, make sure you can make repayments on time. If you miss your repayments, then your future borrowing is doomed, and your credit score reduces significantly, and you may have challenges borrowing in the future.
What’s more precious than peace of mind? And that peace can only come if you’re financially stable. If you have some precious jewelry, an expensive car, or some property, you can sell and use the cash to clear your loan or reduce the principal amount.
A reduced principal amount will significantly bring down your repayments, and thus you can repay your loan without breaking a sweat. Anything you own and don’t use anymore can be disposed of, and use the proceeds to clear the debt.
Sometimes, you may have to sell something that you treasure so much and buy it at a later date when you get back on your feet.
You’ve some savings stashed away for your dream car or the education of your children some years to come. This is an amount you can use to get yourself out of the financial abyss and save again when things are up.
What’s the need of having thousands of dollars in your savings account, and your million-dollar home is about to be auctioned? Take the bold step; use your savings to pay up the overdue amount. When your secured loan is overdue, it could mean you are going to lose your treasured property to the lender. But you can make bold steps like disposing of some of your assets, and use the proceeds to repay the loan. But most importantly, talk to your lender to help you out.
Danis Woods in Businessman, investment banker and stock exchange traders. On the same time he loves writing financial blogs to shed lights on different aspects that new and existing businessman are not aware of.