Secured Loans

What are secured personal loans?

In the world of personal finance, there are two main types of loans: unsecured loans and secured loans. The difference between the two lies in the terms under which the money is extended from the lender to the borrower. In an unsecured loan, the financial institution lends money without requiring collateral. With secured loans, the lender is given the rights to a piece of significant property (such as a house or a car) as collateral for the loan. Then, if the borrower defaults, the lender becomes the owner of the collateral, which they will sell off as a means of recovering their money.

Types of Secured Loans

There are several different types of secured loans:

  • Secured personal loans. These loans can be used for personal purposes; the collateral you'll have to offer depends on the amount you want to borrow.
  • Secured home loans. A secured home loan is a type of loan in which the borrower's house is offered as collateral. These loans are usually for large amounts of money, which is the reason such a significant asset must be put up.
  • Secured business loans. If your business needs operating capital or a loan to purchase new equipment or make improvements to facilities, you can get secured business loans that typically offer existing company assets as collateral. Be careful not to combine your business finances with your personal finances, though, or you risk ruining your own credit rating in the event your business fails.
  • Bad credit secured loans. If you do not have a good credit rating, secured loans are usually your only option for borrowing money from the bank. However, this can be a good thing -- you can use the opportunity to rebuild your credit rating by repaying the money promptly.

For the borrower, secured loans have some significant advantages. Because the bank is holding a valuable asset as collateral, secured loans generally have more favorable terms, such as lower interest rates and flexible payment terms. Also, you may be able to borrow larger sums of money if you offer up a valuable piece of property as collateral, giving you more flexibility in regards to how you use the money.