Secured Loans

Secured loans is when a loan under which a borrower guarantees any of its properties (for example, a vehicle or a property) for collateral on the loan, this is, in essence, a secured debt now owed to a creditor providing the loan. Therefore, the loan is secured against what is the collateral, and if the borrower defaults, the creditor takes ownership of the asset used as collateral and they may now sell this to recover any or even all of the money the borrower originally lent to.

One case in point is home mortgage. It is, from the borrower’s point of view, a debt category for a lender which has now been granted a part of the rights to a given property. Unless the loan repayments are not protected by the sale of this collateral, the creditor may also get a default judgment against the borrower for the outstanding loan balance.

The opposite of this secured debt or credit is called unsecured debt that is not attached to any part of the land. Rather, the creditor can only now satisfy the loan, irrespective of collateral, against this borrower. Thanks to the lender’s added security, secured debt will typically attract better interest rates compared to unsecured debt; however, credit risk (e.g., credit history and willingness to repay) as well as projected returns to borrowers are often factors that influence interest rate levels. The word “secured loan” should be used in the UK while the US uses the phrase “secured debt,” more generally.

Secured personal loans let you borrow money against an asset’s value such as a vehicle or your savings plan. Secured loans can carry lower interest rates, but carry risk as well.

A secured loan is a form of loan that allows you to guarantee something that you own, against a lower interest rate or for a greater amount of money, in exchange. Although the odds of qualifying for a secured loan still depends on your credit score, income and your outstanding debt history, pledging an asset will increase the probability of acceptance, considerably.

The downside:

• When you don’t make payments on time, the lender will be able to seize your asset and your credit score will suffer.

This is what you need to know, and where to find secured personal loans, including online lenders, banks, and credit unions in your area. Notice that for each lender, the information is unique to their unsecured loan policies. And, for secured loans, the qualifying requirements and specifics of the loan may differ.

Which assets are you required to use to secure a personal loan?

Your car:

The vast majority of privately guaranteed loans will use a vehicle as collateral. These loans— known as auto equity loans— allow you to borrow money against the car’s market value.

A lender who recognizes your car as collateral may allow you to insure it for physical harm, naming the lender as the payee for loss, in case the vehicle is totaled due to an accident. If you have cancelled the accident and comprehensive insurance on your paid-off  vehicle to save money, lenders can sell you limited credit insurance, which is sometimes more costly than the lowest premium for comprehensive vehicle insurance.

There are two other ways to borrow against your vehicle:

• If you already owe money on your vehicle but have considerable equity, auto refinancing is an alternative. Refinancing supersedes the initial loan with a higher amount of a new loan agreement.
• Car title loans, which usually have an annual percentage rate of up to 300 percent, do not include background checks and you do carry a greater chance of having your vehicle repossessed if repayment are not made.

United States Funding Pros does not support auto title loans.

Your investments:

If you have money in a savings account, using that money is easier than having a personal loan that incurs interest. When you have to hold on to your savings or need more funds than is available in your account, certain lenders may make guaranteed personal loans based upon collateral from savings accounts or deposit certificates. You probably won’t be able to use your savings account or CD until your loan is repaid.

Once you take out a secured loan, you owe some of your properties to the lender, making them “collateral.” When you don’t repay the loan, the lender will use the collateral to reclaim the unpaid funds. Since there is less risk to lenders, secured loans are easier to apply for, even if you don’t have a good credit score — but some of these loan repayments can be expensive for borrowers who aren’t careful.

Pros and Cons for Secured Loans

Consider carefully what asset you would be using as collateral when choosing a secured loan. Additionally, make sure that you can make complete and timely payments for the loan, so that you don’t risk losing your asset to the lending institution.

In general, secured loans (those other than mortgages or car loans) can be intended for those who may have been declined for unsecured loans. They can also help in rebuilding credit scores and credit histories when used correctly.

Banks may also prefer them, as the lender’s risk is minimal. After all, the bank now has a legal right to the asset you used for collateral if you do not make your payments. In addition, the bank could use the collateral to cover its losses if payments are not made regularly.

Although, in some situations one secured loan may be the best way to rebuild your reputation, it’s always crucial to make your payments when needed to boost your ranking. The harder this gets, the greater the debt you will take on. If you overstretch yourself, this plan could backfire.