What is a secured loan

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Information about What is a secured loan
Business & Mgmt

Published on February 25, 2014

Author: mattstudge

Source: slideshare.net

Description

A secured loan is basically any type of loan that is backed or secured by an asset, most commonly known as a “collateral” in order to reduce the numerous risks associated with lending money to borrowers.

What Is A Secured Loan? A secured loan is basically any type of loan that is backed or secured by an asset, most commonly known as a “collateral” in order to reduce the numerous risks associated with lending money to borrowers. Taking the mortgage as an example, this is a secured debt because it is backed by the house, which in this equation is considered to be the collateral – if you fail to repay your debt within the given time frame, then your bank will take your home in order to recover the money they have lent to you. From the perspective of the creditor, a secured loan is far better than an unsecured loan given the fact that the first one offers them more peace of mind, knowing that even if the customer fails to repay their debts, the creditor will still not lose any money. However, it must be said that secured loans are often regarded as a win-win situation, given the fact that the bank or the creditor is not the only one who has something to win out of this – it often happens that secured loans come with a much lower interest rates as opposed to the unsecured ones, given the added security on behalf of the borrower. At the same time, it is not uncommon for those who secure their loans to have access to a much higher amount of money that can be borrowed, as opposed to those who do not bring collateral to secure their debt. Once again, this happens because the creditor has a “back up plan” and gives the borrower more credit. Nonetheless, it must be said that interest rates can still be affected by other variables such as the borrower’s own credit history, as it is a known fact that a bad credit history can increase the interest rates and lower the chances of having the loan approved in the first place. A Brief Overview of Secured Loans There are many reasons why a borrower should consider securing their debt, and it is not uncommon for some borrowers to secure it with their home, their car or any other valuable asset when they want to extend the existing loan or to take out more money. In this case, the creditor faces fewer financial risks and the borrower also faces favourable terms, unlike it would happen with an unsecured loan where the borrower would have a hard time extending the loan or expanding it without backing it up with any collateral. Nowadays, many people choose to expand the repayment period in order to reduce their monthly rates, and in order to do that they choose their house as collateral.

Another notable advantage is that you can secure virtually any type of loan, and mortgage loans (where, as mentioned above, your house is your collateral) are by far the most common ones. If the debt is not repaid properly, then the creditor proceeds to what is known as the foreclosure, the legal process during which the home of the borrower is sold in order to repay the debt. http://www.beechfinance.co.uk/

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