Secured loans are loans that require some form of collateral to secure the loan and guarantee that the loan amount will be repaid in full no matter what. A piece of property with some value such as an automobile, valuable jewelry, or home equity that is used as collateral will be legally granted to the lender so that they can repossess and sell it if the loan is not repaid.
Though this might sound risky, this type of loan offers many advantages that can make it worth the risk.
Below you’ll find some basic information about the loans, as well as how to find out what you should expect in regards to loan terms and interest rates should you choose to pursue this lending option.
Secured loans require collateral, which as mentioned above is some property of value that can be held in one form or another by the lender to make sure that the loan is repaid as promised. In some cases the collateral is literally held by the bank or lender, but more often the lender simply gains a legal claim to it. If the loan is not repaid, then the lender is legally entitled to take possession of the collateral and sell it.
This process can cost time and money that most lenders would prefer not to spend, so instead the lender will try to work out a solution that’s satisfactory to both parties before it ever reaches this point. Just because a lender can work out these terms, however, doesn’t exempt the borrower from credit damage and other responsibilities.
Types of Collateral
Collateral for secured loans can include automotive titles, property deeds, home equity, precious metals, and a variety of other collectibles or antiques. Some loans may require specific types of collateral, or the item purchased by the loan may even serve as the collateral itself. Different lenders may request that specific types of collateral, so be sure to check with your potential lender for their preferred methods.
What to Look for in Your Loan
When applying for secured loans, there are several things you should consider when looking for a lender. You should be able to qualify for some secured loans even if you’ve had credit problems in the past, since secured loans exist to reduce the risk to lenders and allowing them to offer loans to applicants with less satisfactory credit histories than they might consider otherwise.
Unless there is a specific reason, the interest rate for the loan that you take out should be lower than the rate for a loan without collateral. The security of having the collateral for the loan means that the lender isn’t taking as much of a risk, which means they should be able to offer you more competitive rates.
Having access to different payment options is also important; because your loan is secured against property of value, a lender may allow you several payment options and possibly even benefits for paying off the loan early. If the lender that you’re applying with doesn’t meet these expectations, shop around until you find one that does.