What is a Secured Loan

Secured loan is a type of loan that a borrower pledges an asset which can be in form of a car or property. This is done as collateral for the loan. In doing this, the debt becomes secured by the creditor as it is secured against the collateral. This is not risky as in the event the borrower defaults, the creditor will remain with the asset used as collateral and can sell it to regain the amount that was lent to the borrower. Secured loans attract lower interest rates as compared to unsecured loans as there is collateral. Credit history, ability to repay and expected returns for the lenders are also factors that affect rates.

When in need to apply for a secured loan, leveraging your personal assets can help you finance your goals. The value of your assets such as your car or home helps determine the rate of your loan. Loans that leverage your assets are referred to as secured loans. There are two purposes of a loan secured by debt. The first is the creditor is relieved of the financial risk involved as the creditor is allowed to take the asset of the borrower in case the debt is not repaid back. The second one is that the debtors get to receive loans on favorable terms as compared to unsecured loans.

There are various types of secured loans. One is the mortgage loan. This is a loan which is secured. In this, the collateral is the property such as a home. The other one is a nonrecourse loan where the collateral is the only security a creditor has against the borrower. Others include the debt consolidation where a home or personal property is the collateral. This type of loan, money is loaned to pay the original lenders off and the borrower then has to repay one loan. Debt consolidation loan offers a lower monthly payment. These are just but a few examples of secured loan types. A secured loan is advantageous to the creditor since a repossession can be done in case there is default in payment by the borrower.