Secured Loans

 

Some of the other items that can be used as collateral to obtain secured loans are works of art, furniture, jewelry and livestock. Even home equity loans or second mortgages can be secured loans. But, the borrower gets the title only after the repayment of the entire sum.

Loans that are offered against collateral are referred to as secured loans. This type of loan is the preferred form, especially when anyone requires substantial sums of money. An asset whose legal rights are vested with the lender in case of non-payment of the loan by the borrower is called collateral. A lender would not like to extend huge sums of money without some kind of security. In case the borrower fails to repay the loan within the stipulated time, the lender can exercise the option of selling the security to recover the money he is owed by the borrower.

If secured loans are obtained for the purchase of a home or a car or any other property, the item can be used as collateral and a lien can be placed on such purchases. The lender, which could be a bank or a finance company, will keep possession of the title or deed and return it to the borrower on payment of the entire loan and the interest accrued on it. In addition, other financial assets such as stocks, bonds or personal property could be kept as collateral to secure a loan.

Going by their very nature, secured loans carry a lower rate of interest than unsecured loans. The popularity of secured loans is greater than that of unsecured loans because the lender is assured of recovery as he has security, while the borrower feels more comfortable as the rate of interest is low on secured loans. Another likely advantage of secured loans is the relatively longer period of repayment, which gives breathing time to the borrower. Home ownership in the US is financed mostly through mortgage lending, as in most other countries.

Such secured loans amortize over longer periods, usually around 30 years. In case the borrower fails to pay mortgage, the lender retains the option to foreclose or repossess the house. While opting for secured loans, the borrower should verify the credentials of the lender and ensure that the EMI is within manageable limits.