Monday, April 30, 2012

Which's Better - Secured or Unsecured Loans After Bankruptcy

After bankruptcy everything is hard. Being emotionally motivated to do anything with your finances, getting credit cards, talking about your situation with people, getting insurance, getting a job, and getting loans are all among the long list of areas where things have changed for you. Doing these things is important though because if you just hide away your life will never really move forward.

At some point in your post bankruptcy life getting a loan will probably come up. So, should you get a secured or unsecured loan after bankruptcy?

Secured financing is when you borrow money, but offer up something as collateral in case you don't make your payments. This collateral is most often real estate (which is the only thing most banks will accept) but using a vehicle for collateral is another popular choice and it's fairly easy to find a lender who will work with this. Slightly harder to find, but still possible, are lenders who are willing to use jewelry or high priced collectibles as collateral. While with a home or vehicle you keep the item in your possession while repaying your loan, with jewelry or collectibles the lender will keep the item in their possession until you've finished making your payments.

If you're looking to rebuild credit, and aren't as interested in actually obtaining financing, you can also do a CD secured loan. The reason this is really only for those looking to solely rebuild credit is that you'll have to have some money prepared to buy a certificate of deposit, so it's not REALLY about borrowing funds. These products are set up specifically for this purpose.

An unsecured bankruptcy loan is where you get financing without any kind of collateral. The lender decides to lend you money based entirely on your credit history and if you fail to make your payments then they can file reports on your credit report and have creditors call you in attempts to get their money back, but they are mostly out of luck. It's for this reason that this type of financing is harder to get approval for when you have a bad credit history, but still not impossible.

Because with secured financing the lender is taking less of a risk they are more likely to work with you, and they give better interest rates. While they would still prefer to not have to repossess collateral, they at least have an option in case you don't make your payments.

The downside for you, the borrower, in the situation where you are offering up collateral is that you are risking losing your property if you can't make your payments. Hopefully this won't be a problem though, it's important to build up a budget and know that you can make your payments on time, both so that you don't have these problems, and so that you can use this as an opportunity to help build up your credit.

If you get a loan and make your payments on time each month then you will have this on your credit report, improving your score, and making getting unsecured financing a much easier task in the future.

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