A secured loan is a line of credit that requires an asset or collateral from the borrower as security for repayment. Any property, such as a home or a car, can be used as collateral by a secured loan borrower. The finance company or bank that provides the line of credit usually holds the deed or title of the asset or collateral until the loan has been paid in full, interest and all applicable fees included.
The best way to acquire a large amount of money quickly and easily is through a secured loan. No lender is likely to loan a very large amount with only a borrower’s word of repayment. Putting up collateral is a fairly safe guarantee that there will be reason enough to repay the loan or risk the property being seized.
New purchases are the most usual reasons for taking out a secured loan but these loans can also be used for home equity loans or even second mortgages. These loans use the basis of the amount of home equity or the value of your home, minus what is still owed. In short, you can use your home as collateral but failure to make your payments on time can result in you losing it.
Debt consolidation loans are another type of secured loan. Making a lot of high interest payments each month can be troublesome, but a debt consolidation loan takes care of that. Money is loaned to pay the multiple lenders off fully and then the borrower only has one payment to make each month. It is more convenient and also saves a borrower a lot of money over time, since interest rates for secured loans are lower than most other loan types because of the security.
With an unsecured loan, borrowers take advantage of the lower interest rates compared to unsecured loans because the lenders who offer unsecured loans take more of a risk because the lack of property to hold onto in case of default. Another main difference between the two loan types is that, unlike an unsecured loan where your credit history and rating are one of the most important factors for approval, a secured loan can be available without a credit check. So if, for whatever reason, you’ve been turned down for unsecured credit, a secured loan may be your best alternative, as long as you have something of value to use.