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A secured loan is exactly what the title suggests. It is secured by
something that is, normally, of equal or higher value. This security
is called collateral. The borrower’s collateral is the object,
money or property that financers can appropriate to pay themselves back
in the event of a default on the loan. Secured loans are suitable when
you are trying to raise a large amount, creating a bigger risk for the
financer. This type of loan is also appropriate when you cannot get
an unsecured loan, or when you have a poor credit history. The security
reduces the risk for the lender, making them more willing to work with
you. Great examples, where secured loans are common, are the purchase
of a new car, the need to make home improvements, the desire to take
the luxury holiday of a lifetime.
Secured loans have many benefits, such as lower monthly repayments
compared to unsecured loans. The ability to borrow a larger sum of money,
or to spread the repayments over a longer period of time. A secured
loan is the type of loan that is only available to people with securable
assets. Usually, these assets take the form of property, such as a home;
this is why secured loans are often referred to as ‘homeowners
loans’, ‘home loans’, ‘secured personal loans’
or ‘second charge loans’. You do not have to own your own
home outright to be able to take out a secured loan. If you have a mortgage
you can put the proportion of the home that you own up as security.
Because a secured loan is secured by collateral, most lenders will approve
your loan even if you have a history of adverse credit, defaults and
arrears. This makes secured loans very attractive to people who would
otherwise not qualify for a loan from their local bank.
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