Saturday, December 30, 2017

what is secured loan and types of secured loans

Secured loans are loans that are backed by an asset, like a house in the case of a mortgage loan or a car with an auto loan. This asset is collateral for the loan. When you agree to the loan, you agree that the lender can repossess the collateral if you don't repay the loan as agreed,the lender has the right to take possession of the collateral and apply the proceeds of the sale of the collateral to the outstanding debt. 
The borrowing limits for secured loans are typically higher than those for unsecured loans because of the presence of collateral. Mortgages and home equity lines of credit are two common types of secured loans. Secured loans can have either a fixed or variable interest rate and can last for a set or variable amount of time.

The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral and the borrower. 
Generally speaking, secured debt may attract lower interest rates than unsecured debt due to the added security for the lender; however, credit history, ability to repay, and expected returns for the lender are also factors affecting rates.The term 'secured loan' is used in the United Kingdom, while in the United States it is more commonly known as 'secured debt'.


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Why Choose a Secured Loan? 
With the risk of having your property seized if you don't repay the loan, you might wonder why anyone would choose a secured loan. People sometimes choose secured loans because their credit history will not allow them to get approved for an unsecured loan. Because secured loans are backed by assets, lenders have lower risk in extending a loan to you. Secured loans also allow borrowers to get approved for higher loan limits.

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