Secured Loan

A secured loan is a type of loan that allows a borrower to borrow money as long as collateral is provided. Collaterals offer a degree of security to lenders, especially when the amount to be borrowed is a large sum or the borrower has a bad credit history.

How It Works

When a borrower obtains a loan from a lender, he secures the debt by offering a property as collateral. The collateral can be a car, a home, or any valuable asset. With a mortgage loan, borrowers offer the home as collateral. In the event that the borrower fails to make sufficient or on-time payment, the lender is given the right to foreclose the property. The property is sold at an auction or to any potential buyer so that the lender gets back the amount of money invested. With a car loan, the lender may repossess the car when the borrower fails to make payments.
The Purpose of Securing a Loan

The main purpose of securing a loan is to guarantee that a certain amount of money invested can be taken back no matter what the cost is. This gives the lender a sense of security with regard to the investment. Although it may be at the disadvantage of the borrower, resulting in him or her losing a home or a property, it does have its own advantages.

Advantages of a Secured Loan

For the lender, this type of loan has a lower investment risk because the loan can be compensated by the collateral. The property can be sold as soon as the borrower fails to pay off the debt. For the borrower, a secured loan offers lower interest rates compared to an unsecured loan. The reason behind the lower interest rate is obvious. The loan already has a guaranteed payment even if the borrower does not intend to pay off the loan. Since it is considered a low risk investment, lenders often offer highly attractive deals for this type of loan (e.g. lower interest rates, longer repayment period, and higher amount of money to be borrowed).

Secured Loans and Bad Credit

People with bad credit may find it quite hard to obtain an unsecured loan. However, getting a secured loan is quite easy as long as there is collateral. One advantage that a secured loan can offer is raising the credit score. People with bad credit can make use of a secured loan to increase their credit standing as long as the loan is paid in full and on time. Obtaining a Secured Loan

To obtain a loan, the very first thing to keep in mind is where to get it from. Banks offer these loans in exchange for any property. However, certain banks only offer these loans for certain types of collateral, e.g. homes and cars. Another point to consider is the interest rate and repayment options. Check out the best deals by going online or getting in touch with different banks. Secured loans can be obtained from pawn shops, credit unions, and individual lenders as well.