When you hear people talking about loans, chances are that they are really talking about secured loans. Most loans today are secured loans, which is why it is vital that you understand what they are, especially if you are considering getting a loan. Simply put, a secured loan is where the borrower puts up some property as collateral for a loan. The property put up really depends on the amount of the loan money, but in most cases it is a car, house or land among others. Once the property has been put up as collateral, it becomes what is referred to as a secured debt that is owed to the creditor of the loan. With secured loans, once the debtor or borrower fails to pay the loan amount per the agreed upon time, the creditor can then take possession of the asset put up as collateral. The creditor reserves the right to sell that property in order to recover some or the entire loan amount. In case the sale of the property does not yield the entire loan amount, the creditor can then take it to the courts to recover the balance.
Secured loans are usually preferred by both borrowers and creditors, because of the added level of security. Creditors prefer them because they give them a sense of security, knowing that in case the debtor fails to raise the loan amount, they always have a fallback position, or another way to recover their money. On the other hand, debtors prefer secured loans because they generally attract low interest rates. The whole rationale behind interest rates is for the creditor to have some form of security until the loan is fully paid off. Since the creditor already has security in the form of collateral, there is really no need for high interest rates.
There are numerous types of secured loans, including mortgage loan, non recourse loan, repossession and foreclosure among others. A mortgage is a secured loan because the house is always put up as collateral. Once you default on your mortgage payments, the bank reserved the right to take possession of your house.
In a nutshell, a secured loan is the safest loan, because it gives the creditor some form of security and gives the debtor an added advantage.