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Secured Loan

´╗┐What You Should Know About Secured Loans


The cost of living has spiraled like never before and it is the common man who is the worst affected amongst all. It is now a common practice to resort to a series of mortgages, loans and other forms of financial help in order to support the budgetary requirements, even for the daily living.

In face of such circumstances, it is the category of secured loans that are becoming increasingly popular amongst different sections of borrowers as well as creditors. However, to opt for this kind of a loan, it is first important to be aware of the few important basics of the same.

The Basics

A secured loan is basically defined as a loan in which the borrower pledges a particular asset as collateral for the loan, such as a car or property. This kind of a loan then becomes a secured debt for the creditor.

In a situation where the borrower is unable to repay the amount involved
in a secured loan, the debt can be then secured against the collateral. In other words, the creditor takes possession of the asset and has the right to sell it to reclaim the expenses involved.

On the other hand, from the viewpoint of the creditor, in secured loans, the lender has actually been granted a portion of the bundle of rights to specified property.

Experts advise that there are three main benefits of opting for a secured loan, from the viewpoint of the lender as well as the borrower. These include:

- Minimization of the risk for the creditor as in the case of non-payment, the pledged assets can actually be used
- Possibility of higher amount being sanctioned in the face of secure loan
- Less amount of stress for the borrower as some kind of a security has already been provided.

Types of Secured Loans

There are various types of secured loans that are available in accordance with the borrower's requirements and the general terms. The few most common type of secured loans include:

1. Savings secured loan

In this type of loan, it is mandatory for the borrower to have a savings account with the creditor. Hence a portion of the money in the account is used as collateral for the secured loan.

2. Mortgage loan

This is a secured loan, in which property acts as a collateral, the most common example being home.

3. Nonrecourse loan

This is a form of secured loan in which the collateral is the only security the creditor has against the borrower.

A few common examples of secured loans include:

- Home Equity Loan
- Second Mortgages
- Debt Consolidation Loan