Secured Loans

Secured loans, like the name suggests, are loans that have been secured by some form of security or collateral. The borrower of the loan usually puts up an asset as collateral for the loan being taken. The collateral can be in the form of a car, property, home or any other similar form of asset. In financial terms, when an asset is pledged by the borrower as security for the loan being taken from the lender, the loan is known to be a secured loan.

When an asset is pledged as collateral for a loan, the lender has the right and first claim to the asset in case of default by the borrower to pay back the loan. The lender has the right to take possession of the asset and recover their borrowings from the sale of the security.

In the case of an already mortgaged property, a secured loan can be drawn on the property provided there is enough equity left for the loan to be paid off after the mortgage has been repaid. (Equity is defined as the difference between the market resale value of the property and the outstanding balance on your mortgage). In this case, the secured loan lender has a second charge behind the first charge on the property by the mortgage lender. In case of default by the borrower, the mortgage lender gets paid first, then the secured loan lender and lastly the borrower from the sale of the property.

Since the loan is secured, it is relatively easy for people with an unfavorable credit record to borrow because the risk to the lender is much less than that of an unsecured loan lender. Because of this reason, the interest rate on secured loans is considerably lower than loans which are unsecured. Obviously, the rate of interest will be directly proportional to the amount of risk perceived by the lender.

Also, it is possible to get a much longer repayment period on secured loans, which means that your monthly repayment amounts will be significantly lower and manageable. However, it is not always recommended to choose the repayment over long time intervals because you will end up paying the interest for a longer time which may be costly. You need to make a proper assessment based on your own individual case.

Keep in mind that, although you will be able to borrow larger amounts with secured loans, the amount and rate of interest will vary from lender to lender and will be influenced by your previous credit history and the value of your property. With all these variables, how can you take the right decision on which type of loan to take, especially if you are considering homeowner loans?

You should find a reputable broker in your area because they are having a lot of this variable information from lenders, and will be able to guide you in taking the complex decision. It is also a fact that many lenders make their loans available only through brokers because they are able to use their expert knowledge to find the best secured loans to match your individual requirements. This will save you a lot of effort, time and energy in finding the appropriate secured loans.