Secured Loans

Secured loans require that the borrower provide some sort of collateral in order to secure the loan. If the loan is not repaid on time or at all, the lender has the right to repossess whatever property was used as collateral. These types of loans are risky to the borrower because of the aforementioned. However, they continue to be pretty popular. This is because there will be times when a secured loan is the best option, or at least a good one. A little later we will discuss why.

Examples of Secured Loans

Home Equity Loans: Home equity loans are a pretty common type of secured loan. It is secured by the borrower’s home. Thus, if a person defaults on the loan, the bank or lender will be able to take possession of their home. These types of loans tend to have really good terms. The interest rate is generally very low and the amount of the loan can be added to the price of the home, so that the borrower is not required to take out an additional loan.

Home Equity Line of Credit: A home equity line of credit is another example of a secured loan. The borrower’s home secures the loan and again, if he or she fails to repay it, the home can be repossessed. A line of credit differs from a loan in that the borrower can use the money as they need or want it. They don’t take it out in one lump sum.

Title Loans: A title loan is one in which a person’s vehicle secures the loan. If the borrower is unable to repay the loan or is late making the payments, their car (truck, etc.) becomes the possession of the lender.

Secured Personal Loans: A secured personal loan will, again, require that some sort of possession be used to secure the loan. The required possession, in terms of value, will depend on the lending institution.

Why Secured Loans?

There are a number or reasons why a person would opt for a secured loan. The fact that the interest rates tend to be pretty good is one reason. Another reason a person might take out a secured loan is because these types of loans are often times readily available to people with average to poor credit. We’ll discuss these in a little more depth below.

Affordable interest rates: Lenders tend to offer decent rates on secured loans. This is because they are backed by whatever the borrower has put up for collateral. There is less risk for the lender so the loan is cheaper.

Available for people with average to poor credit ratings: People who have average-to-poor credit may find that a secured loan is the only thing they qualify for. A lender might be willing to give someone with bad credit a loan, because again, it is secured by collateral. If the borrower can’t pay back the money, the lender gets to keep whatever secured the loan.

In Summary

A secured loan is secured by an asset owned by the borrower. If he or she fails to pay back the loan, the lender can legally repossess it. Examples of secured loans are, home equity loans, home equity lines of credit and title loans.