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Secured Loan


A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral (A person who is liable for the verification) for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

The debt is thus secured against the collateral — in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. 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.

A secured loan is a loan that has collateral attached to it. This type of loan generally has a lower interest rate because the bank is taking a lower risk because it can collect the collateral if you default on payments. A secured loan is a good way to build credit.

There are several types of secured loans. Mortgages and car loans are the most common types of loans. You can also get a secured credit card by attaching a Certificate of Deposit (CD) to a credit card. Banks will do this for customers who are trying to rebuild their credit history. The credit limit will be about the same amount as the CD and if you fail to pay, then the bank takes money from the attached CD.

If you have unsecured debt, you should not transfer it into a secured loan. Many people do this by taking out a second mortgage to pay off their credit card builds or taking a title loan on their car to pay off other bills. This puts your home or car at risk if you were to default on the loan later on. It is best to work on paying off your unsecured debt quickly.

Secured loans are available to people who have been denied unsecured loans. They are an excellent way to work towards building your credit score. Banks like them because there is less risk involved. The lower interest rates are also an advantage to choosing a secured loan. You should be careful as you choose what you will use as collateral most banks require a home or a car in order to give the loan, although a savings account such as a CD may work, but you will not be able to access that money for the entire duration of the loan.

Purpose

There are two purposes for a loan secured by debt.
  • By extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. In exchange, this permit
  • the debtors may receive loans on more favorable terms than that available for unsecured debt, or to be extended credit under circumstances when credit under terms of unsecured debt would not be extended at all. The creditor may offer a loan with attractive interest rates and repayment periods for the secured debt.
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