Secured Loan Rates: Freedom with Collateral

2007-03-08 10:33:40

( Financial )



SECURED BY AN ASSET

A secured loan or secured credit is a type of loan where your asset or property is used as guarantee against the loan that you are borrowing. A very common example of a secured credit or loan is mortgage. A mortgage is a secured credit where the property you are buying is used as collateral so you can borrow the cash needed to finalize the purchase.

Banks and other lending institutions prefer secured loans because this type of loan has a built-in system that ensures them a way to recover the amount they have given out in case the borrower fails to make the loan payments. In case of payment defaults on your part, the collateral used in the loan will be sequestered by the lending company. The lender will now have ownership of the said asset and can dispose of it as they deem fit.

PREFERRED BY LENDERS

Because this is a lower-risk type of loan, secured loan rates are generally lower than other loan types. Lenders will usually evaluate a loan based on how risky it is for their part and charge the corresponding interest charges to reflect these risks. Secured loan rates are lower because the nature of the loan makes it less risky for lenders because whatever happens, the collateral involved in the loan secures the debt. Lenders have nothing to lose in issuing a secured credit that is why they can afford to give more affordable secured loan rates.

Apart from having low secured loan rates, a secured loan is also much easier to obtain and there are no limitations as to how you can use the money you are borrowing. Ordinary loans impose certain restrictions on how the loan can be used depending on the type you a availing of. Being free from this restriction makes a secured credit much better in the sense that you have the freedom to decide how and where you will use the money you have borrowed.

Just make sure you can pay the debt because you stand to lose an asset if you don’t.


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