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What is a Secured Loan?

Sep 2, 2007
There are many types of loans available and the nuances of some can be confusing, but one thing is certain: all loans are either secured loans or unsecured loans. This article will examine some of the issues that you can expect to face when applying for a secured loan.

A secured loan is a type of loan in which you must put something of value into the deal as collateral. The item of value that you put up as collateral can vary. It might be a certain amount of cash, a home that you own, a car that you own, stocks, or bonds. It might also be a less traditional type of item such as a piece of expensive artwork, jewelry, a thorough bred horse. In some cases you may have to put up more than one item to cover the cost of the loan. The type of items that you can use will be determined by yourself and the lender.

The reason that you are required to post collateral is that in the event you do not pay off the loan or you miss too many payments the lender can take the item from you as payment for the loan. It is very important that consumers understand the gravity of this type of loan. You can lose you home, your car, your cash, or other collateral if you do not adhere to the conditions of the loan. In most cases, the legal documentation associated with the collateral will have to be turned over to the lender. This might include the title to your car, the ownership papers of a property, or the article of jewelry. To be perfectly frank about it, lenders hold these items in case the borrower disappears on them without repaying the loan amount.

For secured credit cards, borrowers are almost always required to deposit a certain amount of cash into an account that the lender has access to. In general, but this will vary from lender to lender, the amount of cash that is deposited is the amount of credit that will be assigned to the secured credit card. In other words, if you put in $500 of your own cash, you will have access to $500 of credit on the card. Do keep in mind, however, that each lender has its own policies regarding the credit limit that is assigned to cash deposits. Some of your cash deposit may also be used to pay fees or other charges. You should always research the total amount of your deposit that will be used in fees before you sign up with any secured credit card company.

Any consumer who is considering a secured loan should be careful. There are many lenders who are fair and honest and are offering a service that many individuals need, but there are also many other lenders who are looking to charge you as much as possible in the hopes of maximizing their profits. There is simply no reason that you have to work with companies that charge exorbitant fees. You can do a lot of research on the Internet to get a better sense of what is available in secured loans of all types.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Compare Cheap Loans and Secured Personal Loan
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