Unless your credit score is at least in the 700's, you will find it challenging to get funding for real estate investing

Over the last few weeks, we talked about building credit, one of the things that you will need for real estate investing. In my most recent post, we talked about using secured credit cards. We discussed what they are, how they work, and some pointers for when applying for a secured card. This week, I would like to cover another credit building option. This one is secured loans or credit builder loans. Like with any credit building avenue, there are many options available, so always make sure to do your research before fully committing.

What are Secured Loans

Secured loans are not the same as a regular loan. When opening an account for a secured loan, the lender you choose to go through will require collateral before making the funds available. There are many types of secured loans, which include auto loans and mortgages. An auto loan requires a vehicle to be put up as collateral, while a mortgage requires a home to be used. As long as payments are made on time, these will help with building credit. However, if the loan payments become delinquent, and the loan defaults, the item used as collateral becomes the property of the lender.

There are other loans available that use cash as the collateral. In other words, much like a secured credit card, a deposit is required. Typically, the amount of the deposit will be the amount of the loan. Once the deposit is made and the loan is made, it works like any other loan. You will be required to make a set monthly payment, including interest, to your lender to pay back the loan. Interest rates are typically lower on a secured loan than with other loans, but always check your options and do your research. This will ensure you get the best deal and find a financial choice that is right for your situation. nerdwallet.com advises the goal should be to find an APR below 36% on any loan, secured or unsecured.

Use it wisely

With secured loans, or any loan for that matter, on time payments are the most important factor. Not only will this increase your credit score, but it will also keep you from defaulting. If you do default on a secured loan, the process is different than with other loans. The lender doesn’t have to go through courts or lawyers to be repaid. They already have the right to take the collateral that was posted when the account was opened. So always keep your account in good standing. These on time payments will be reported to credit bureaus, building credit, and once you finish your loan payments, your collateral will be released.

Where to find them

There are many places that offer secured loans. If you have an established savings account with a bank, check with them first. If you do not, you can still speak with banks in your area to see what’s available. Also check with credit unions in your area, or some of the online options. Just be sure to read the fine print, and gather all of the available information before applying. Always make sure that you are prepared and able to complete your commitment. If you do, it will help you in your journey to better credit.

2 COMMENTS

  1. I’m very glad you are getting use out of these articles! I still have a few more to post. I’m gonna do some research on rent reporting services as well and hopefully do an article on that as well. It may be helpful to share with tenants as well!