Secured loans are financial agreements between a borrower and a lender in which the borrower pledges an asset to the lender in exchange for a loan. Interest rates tend to be cheaper compared to unsecured loans.
These types of loans are usually used to borrow large sums of money. They are also popular with individuals who have bad credit.
The term “secured” refers to the security that the lender will require in case you can’t afford to repay the loan. If you as a borrower fail to keep up with repayments, the lender can repossess your asset.
Examples of secured loans include:
- Home equity or homeowner loans
- Second mortgages
- Debt consolidation loans
Some people opt for getting a further advance on their mortgages for home improvements or even for raising a deposit to a buy a second home. While an advantage is that you will normally pay a lower interest rate, the downside is that arranging this type of loan may be quite costly.
You’ll also need to make sure that you keep up with repayments because if you don’t, you risk losing your property. The lender will repossess the asset.
These types of loans are also typically easier to get access to and to qualify for. Some lenders who provide secured loans to individuals with bad credit, often don’t require credit checks. They simply rely on the asset they’ve secured as surety for the loan. This factor is what often attracts many people to secured loans.
Lenders that provide secured loans don’t restrict individuals in terms of how they can spend the loan. The individuals are free to decide how they want to spend the funds. This can be for home renovations, paying for costly tertiary education expenses or even for an emergency medical bills.