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What are Secured Loans?

Personal property, such as sailboats, may be used as collateral for a secured loan.
Secured loans are commonly used to purchase real estate, which in turn serves as security for the note.
Failure to comply with terms of a secured loan results in the financial institution taking possession of the collateral.
Article Details
  • Written By: Sherry Holetzky
  • Edited By: Lindsay D.
  • Last Modified Date: 04 September 2014
  • Copyright Protected:
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Secured loans are those loans that are protected by an asset or collateral of some sort. The item purchased, such as a home or a car, can be used as collateral, and a lien can be placed on such purchases. The finance company or bank will hold the deed or title until the loan has been paid in full, including interest and all applicable fees. Other items such as stocks, bonds, or personal property can be put up to secure a loan as well.

Secured loans are usually the best way to obtain large amounts of money quickly. A lender is not likely to loan a large amount without more than your word that the money will be repaid. Putting your home or other property on the line is a fairly safe guarantee that you will do everything in your power to repay the loan.

Secured loans are not just for new purchases either. They can also be home equity loans or home equity lines of credit or even second mortgages. Such loans are based on the amount of home equity, or the value of your home minus the amount still owed. Your home is used as collateral and failure to make timely payments can result in losing your home.

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Other types of secured loans include debt consolidation loans where a home or personal property is used as collateral. Instead of having many --usually high interest-- payments to make each month, money is loaned to pay the original lenders off, and the borrower then only has to repay the one loan. This is not only more convenient but it will also save a lot of money over time, since interest rates for secured loans are lower. A debt consolidation loan usually offers a lower monthly payment as well.

On the other hand, unsecured loans include things like credit card purchases, education loans, or bank notes, which usually demand higher interest rates than secured ones, because they are not backed by collateral. Lenders take more of a risk by making such a loan, with no property to hold onto in case of default, which is why the interest rates are considerably higher. If you have been turned down for unsecured credit, you may still be able to obtain secured loans, as long as you have something of value or if the purchase you wish to make can be used as collateral.

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Discuss this Article

anon111391
Post 7

Is a secure personal loan considered re-paid if the loan is made by an individual and paid back in the name of his construction company in which he used the money to fix up his building we were leasing?

ijiolayiwola
Post 6

Thanks for your article. it helped me to understand the fact that one can obtain or procure secured loans with stock, not only with a house.

anon65822
Post 4

Your article is very informative about secured loans. I am book marking it for my future reference.

faithfarm
Post 1

i have a stupid question. we bought siding from a siding company, they installed it, and they financed it. we signed papers in our house, first with a salesman, then with the installers. we're not stupid, but they are saying this is a "deed of trust to "xxx financing company".

is this possible, if there was no lawyer involved, we did sign a bunch of papers. is this a secured loan? thanks for any input.

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