What Is A Secured Loan

What is a Secured Loans




What is a secured loan

A secured loan is a loan that a lender makes to a borrower that is secured by an access or guarantee of some kind. The presence of these factors will reduce the risks that a lender has and often lead to higher loan amounts for borrowers, better access to loans, and lower interest rates.

 

What Types of Security are Generally Offered Under Secured Loans?

In a secured loans, a company or individual will put up some form of security to the lender. This security may be in the form of a guarantee from a lender which will provide the lender with another party that they can try to recover their loan from if the original borrower were to default on the terms of the loan. Other forms of security can involve an asset that backs the value of the loan. A mortgage loan is a secured loan in that a lender can go after the home if the borrower defaults and sell the home to recover some or all of their outstanding loan balance. Car loans are secured by the value of the car that is borrowed on. Other loans can name specific assets that are securing the loan. In the case of some commercial secured loans a loan may be secured by all of the assets of the company.

 

Advantages to Secured Loans

Secured loans will protect a lender by reducing the chances that the lender will realize a loss on their loan through default as they can potentially seize the asset. For borrowers, they gain access to cheaper and better loans when they are secured. Secured loans let borrowers with questionable credit obtain a loan that they wouldn't otherwise qualify for. In addition, they typically have lower interest rates than other unsecured loans and provide cheaper credit options for these borrowers as a result.