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Tips To Success With Secured Loans

Apr 17, 2008
A secured loan is a type of loan that uses collateral in the contractual agreement between the lender and the borrower. It is the most common type of loans, as it helps get better deals for the borrower and it minimizes risk for the lender.

A mortgage is a type of secured loan that puts property up in limbo between the borrower and lender. If the borrower defaults on the loan the lender can essentially take the land and do with it as they please- most commonly selling it for a profit. Because lenders have less risk in the agreement, they can cut consumers a break with interest rates and associated fees with other types of loans.

But not all secured loans take property as collateral. In fact, virtually anything could be taken as a piece of collateral so long as it had a value that could be verified. This is commonly a vehicle, boat or fine jewelry. Be prepared for lenders to be able to take this property without notice if you default on the loan- so always prepare for the worst when offering something for collateral.

Typically it is considered that the best collateral possible will get the best rates possible. Because this lowers risk for the lender, more friendly interest rates are passed onto the borrower. In that case, one should offer the most valuable item in their possession to get the best interest rate. Keep in mind, however, that it is very possible that the item could be lost- and a backup plan should be created just in case.

Secured loans are the opposite of unsecured loans- which are essentially the same thing without the collateral attached. Owners of unsecured loans will experience inflated interest rates and less benefit. However, this option is the only choice for some who do not have items of value to spare. The fact that a borrower is obtaining a secured or unsecured loan in the first place shows that if the borrower doesn't have an item of value already- it is probably going to be unlikely they can obtain one for collateral.

All is not lost for consumers who default on a secured loan. In many cases financial institutions are more than happy to accept a late payment rather than deal with selling the collateral they obtained in a repossession or before deciding to foreclose a piece of property.

Closing Comments

The secured loan is almost always the best choice when it comes to obtaining a loan. It keeps lenders and borrowers both happy, due to the benefits in less risk and lowered interest rates respectively. But before any decision or agreement is made, it is extremely important to get a second opinion with a financial adviser or lawyer. They may help assist in finding the best deal or "read the fine print" to ensure no hidden fees exist. Only then should one engage in a secured loan and enjoy the finer points of a capitalist economy.
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