Borrowers who are seeking some form of secured credit have typically turned to loans or secured credit cards when a low credit score may be preventing them from more traditional lines of credit that can be used for everyday purchases, improving their credit score, or as a way to consolidate debt. Many consumers often inquire about secured loans as a way to accomplish bad credit debt consolidation, which they hope will bring them more affordability in their debt obligations, but there are those who also seek out secured credit cards as a way to begin the process of repairing a bad credit score when this particular factor in their financial life may be causing problems in other areas.
However, there are aspects of secured lines of credit that must be explored and, before a consumer begins seeking out either a secured loan or credit card, it’s often advised that these individuals look at the rates and benefits that are available not only in general but for their particular situation. Currently, credit cards that are available to bad credit borrowers, like secured cards, are averaging rates of around 24%, but there are some secured credit cards that have advertised rates that are much lower, and it will depend on a consumer’s situation and the severity of their bad credit score as to what rate they may receive. However, when dealing specifically with secured lines of credit, some consumers may find that there are variable interest rates associated with these credit cards and loans, so getting a low introductory rate may not be as great of a deal as one would think.
There are advertisers who are either offering the secured credit cards or secured loans and may advertise lower, fixed rates for consumers but again, a consumer’s credit score will dictate what rate they get and, obviously, each lender will differ in what may be required of a particular borrower or cardholder. Some secured loans, for example, may offer low rates of around 12% but others could fall into the 20% range, so comparing reputable offers will take some time on the part of a borrower. However, there are also those who have advertised adjustable rates, so this needs to be taken into account as to how it will affect a consumer’s use of either their secured loan or credit card.
In the area of secured loans, as an example, an origination fee may also be charged by some lenders, but this can be either affordable or excessive, so this is another area of research that consumers are prompted to conduct. However, consumers need to understand that no matter if they are looking for a secured loan that offers debt consolidation or if they want a secured credit card in the hopes of repairing their low credit score, some form of collateral must be offered and this is where many advisers feel that consumers do not fully understand the responsibility.
Some secured loans are made available because a homeowner will put up their property as collateral, while other consumers looking for secured cards will simply make a deposit of money into the bank account that is associated with a secured card. This can translate to problems, in both cases though, if a consumer is unable to either make repayments on the credit card purchases or meet the minimum required payments on their secured loan, since collateral could be lost and if a sizable piece of collateral is offered, like a home, this can be a huge setback in the financial life of the consumer.
When it comes to handling bad credit debt consumers may need to contact outside resources like a credit counseling agency or even use current credit cards that are in place for bad credit repair as some cards may have a longer history and could be more helpful in terms of reestablishing one’s credit. While secured loans and cards have been helpful for consumers, they are not always the best option and, as a result, consumers who are looking at these opportunities here in the month of June may also want to explore other forms of debt relief assistance or bad credit repair outside of using a secured card or loan.