Secured-Debt Difficulties

Non-secured lenders are often more flexible about working with customers that are having financial difficulties because they basically have to be – their prospects of being repaid are only as good as the borrower's ability to pay). Conversely, secured lenders (creditors who've loaned money that's backed by specific collateral) are not always quite as agreeable. If you fall behind on the payments for a secured loan such as a house or car, you're in danger of having the property seized by the lender. In the case of real estate, that means foreclosure. If the loan is on a car, truck or boat, it means repossession. Along with bankruptcy, foreclosures and repossessions are the worst marks that you can have on your credit report. They should be avoided at all reasonable costs.

If you're having trouble making the payments on your home, the first thing that you should do is to contact the lender. The sooner you inform the creditor of your situation, the better the chances of them working with you to avoid foreclosure. For example, the mortgage lender may reduce or even excuse your payments for a short period of time. However, once you begin making regular payments again, you'll probably have to pay extra fees to cover the past-due amount. Or, the lender may extend your loan's repayment period, tacking the missed payments onto the end of the schedule (which will also likely cost you a fee for the privilege, but it's much better than the alternative).

Many finance companies specialize in refinancing home loans for people who are experiencing money problems. In such cases, you'll probably end up paying a higher interest rate over a longer period of time – in other words, it will cost you. But a refinance can bring your loan current and buy you additional time to get past any temporary problems (just be sure that the problems are indeed only temporary). If you can't work out an agreement with your lender or another finance company, contact a housing counseling agency for advice and assistance. You can find an agency through the U.S. Department of Housing and Urban Development's website.

As a last resort, selling your home is generally preferable to letting it go into foreclosure – at least as far as your credit report is concerned.

By the same token, if you fall behind on your car or boat payments, the finance company that loaned you the money to buy the vehicle may repossess it. Like real estate lenders, car financers have no desire to repossess vehicles. It's expensive, time-consuming and a nuisance. If you call the finance company while you're still current or less than thirty days late on your payment, you can often negotiate a deal to reschedule payments or extend your existing loan.

If your vehicle is repossessed and you can't get it back, the lender will likely sell it. But you still may not be off the hook. As with foreclosed property, if the lender can only sell the vehicle for an amount that's less than the total you owe, you could still be liable for the difference.


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