What Is A Secured Loan

Secured Loan Info

Definition of a secured loan:

A secured loan is a.loan backed by collateral to ensure its repayment. Collateral is defined as something of value put up to guarantee repayment of a loan. A common example is a mortgage which involves a loan on real estate secured by the real estate itself to guarantee its repayment. If the borrower fails to repay the money as promised, the lender may take the underlying secured property according to the written terms of their transaction. Other types of collateral exist besides real estate. Personal property can also serve as collateral for a loan; either one to purchase that property or one which is is secured.by that property.


How the existence of collateral can impact loan terms:


Collateral strengthens a transaction by giving the lender a stake in something of the borrower’s to help enforce the borrower's promise to repay the loan amount. Additionally, the presence of collateral in a transaction gives the lender the ability to adjust the loan terms, including lower periodic payments or a longer loan term in which to repay the loan.


Is it better for a borrower to take out a secured or unsecured loan?


If the borrower has access to collateral, she can structure an unsecured transaction to borrow a quick amount of cash. This opportunity is available if she has excellent credit, or if she wants to pay extra for the unsecured loan. If she can provide collateral to ensure repayment, she can take out a more flexible personal loan from her lender. The presence of the collateral can govern how safe the lender feels with the transaction and how strict he must be when establishing initial loan terms. With a loan secured by collateral, the chances of timely repayment are increased.