What Is A Secured Loan

How Secured Loan Works

How Secured Loans Work


Loans for anything can be confusing because there are so many different terms and names associated with them such as secured, unsecured, fixed interest, and many more. A secured loan is something a like a home, or a car in which the bank has collateral for the loan. For example if you don’t pay your house payment on the loan for your home then the bank comes and takes your home from you. The reason that this occurs is because the house is the collateral for the home loan thus making it secured debt which is much less risky for the bank as no matter what they are going to get their money.

With a secured loan the interest rate is usually much smaller but the principal that you are pay on it much larger as well which means you will still be paying a decent amount in interest every month to the bank on the loan. A secured loan also protects the buyer though as well because it is contracted for the duration of whatever you and bank agree upon. For example a 30 year home loan and if you just pay it the loan won’t take any longer than 30 years to pay off.
 
In the past with loans there were problems that if the bank was taken over by someone else or a new manager came in they didn’t have to honor what it was supposed to be and thus could change the terms and do something such as calling the loan. In calling the loan the lender was essentially going back on their word and saying times up we want the money you should have never been loaned money in the first place. This created a huge problem as people just didn’t have that large sum of cash to pay right then. Thankfully that is no longer the case and the banks have to honor the contract in a secured loan situation.