A Beginner's Guide to Secured Loans

 by: John Mussi

You may have heard the term “secured loans” used in the past, not knowing exactly what it meant… but now that you're in the market for a loan you find yourself wanting to learn all that you can about secured loans.

In essence, secured loans are little more than loans that give some measure of a guarantee to the lender that the loan will be repaid one way or another.

Below you'll find some basic information about secured loans and the implications of choosing this form of loan, as well as what you should expect as far as loan terms and interest rates should you choose to pursue this lending option.

Loan Security

Secured loans are loans that require collateral, or 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 in many cases the lender simply gains a legal claim to it which is known as a lien.

Should the borrower fail to repay the loan, the lender is legally entitled to take possession of the collateral and sell it… the process costs the lender both time and money, however, and pretty much all lenders would prefer to simply work out solutions with borrowers so that the secured loans are repaid satisfactorily than repossess and sell the collateral item.

Common Collateral

Common collateral for secured loans includes automotive titles, property deeds, home equity, precious metals, and collectables or antiques, though certain types of loans may require different types of collateral and in some financing loans such as mortgages and vehicle financing, the purchased item serves as the collateral itself.

Of course, different lenders may request that specific types of collateral be used such as home equity for online loans or automotive titles for low value loans.

Your Expectations

When applying for secured loans, there are several expectations that you should have for the loan. Unless there is some specific reason, the interest rate for the loan should be lower than the rate for a loan without collateral… after all, the security of having the collateral for the loan means that the lender isn't taking as much of a risk.

The lender should also grant more favorable repayment terms, allowing you several payment options and possibly even benefits for paying off the loan early. You should also be able to qualify for some secured loans even if you've had credit problems in the past… after all, the loan is secured so as to provide a guarantee of repayment.

If the lender that you're applying with doesn't meet these expectations, feel free to shop around at traditional and online lenders until you find one that does.

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