Secured loans are the most common forms of lending. Secured loans protect the lender from losing the money that they lend because they are protected by some asset or other collateral. In the case of a secured home loan, for example, the home itself is the collateral.
If the borrower does not pay the secured loan, the lender puts a lien on the property and the home can be returned to the ownership of the borrower if the secured loan is not paid in a timely manner.
Auto loans are often secured loans. If financed through the auto dealership, as in the case of the buy here, pay here used corner auto lot, the borrower who defaults gets her or his car towed back to that dealership and has nothing to show for the money paid for it so far .
For new cars the secured loans are generally made through the standard banking lenders, which really means the bank lends the money to you but gives the funds to pay for the vehicle to the dealer. If your secured loan defaults the bank repossesses the car and then sells it to recover the lost money.
Secured loans are the primary way – and sufficient often the best way – to receive a great deal of money quickly. If you are willing to use your home or other assets as collateral, that secured loan seems near risk free to that lender.
It is not only purchases of new items that are funded through secure loans, however. If you get a line of credit based on the equity in your home or a second mortgage, you are probably doing so for things like a college education, to start or expand your own business, to improve or add on to your home, or for An extended vacation.
These secured loans are given based on the equity you have in your home (its market value minus the outstanding balance on your original mortgage.) This is generally considered the most secure of loans in that your lack of timely payment could have lost you the roof over Your head.
People often take out secured debt consolidation loans, with their personal property or their home as collateral. These loans are generally to pay off some high interest bills such as credit cards, by replacing them with a lower interest debt consolidation loan.
This is usually a wise secured loan for the borrower, and a very low risk loan for the lender. Not only is the borrowers most prized possession in jeopardy if she or he defaults but she is borrowing for a solid and sensible reason – to save money.
Unsecured loans generally cost more because the risk is greater for the lender. The interest rates on unsecured loans such as higher education loans have high interest rates.
If you do not want to risk your home or other property as collateral and apply for an unsecured loan instead but are turned down you may very well still qualify for a secured loan. While you have to put up your home or other property as collateral to do so, the good news is that it is generally going to cost you less in the long run.