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What Is A Secured Loan?


I worked in banking for over two years. Money is either something that people have enough of or they don’t. Sometimes, you need a little extra, and finding the right way to get it is as simple as a trip to the bank and keeping track of your credit.

Unfortunately, the need to borrow money is something a lot of people experience, especially in the current day and age. Times are tough, and an unexpected expense can easily leave individuals in a sticky situation. For those who don’t have family members and alike in a position to help them out, the only other option is to turn to a loan.

Nevertheless, with the wealth of different loans available, it can be extremely confusing to know what one to go for. What’s a payday loan? Should I borrow from my bank? What’s a secured loan? The questions seem to be endless, and this article is here to clarify any confusion regarding the latter; a secure loan. Thus, keep on reading to find out more…

Secured Loans

The reason why secured loans tend to cause a little bit of confusion is that there are several different types. For example, you may have heard of a loan secured against your home or a loan against a car. A loan secured against your home is not to be confused with home loans, which are designed to assist in purchasing a property. If you cannot have security, you need good credit typically, although you can read on how to get a VA loan with bad credit for more details.

A secured loan, in essence, is simply one that is taken out against something you already own. You give the lender the rights to the subject of the loan should you be unable to meet the repayments. This is the lender’s security. They know that if you cannot repay the loan they will be able to get their money by selling the car or the property in question. This is why it is called secured. The lender will thus only give you the opportunity to borrow up to a certain percentage of the subject’s worth. This is usually around 70 percent – nevertheless, this is dependent on what the loan is secured against and what company you have borrowed the money from.

Logbook Loan

A logbook loan, otherwise known as a loan against a car, is undoubtedly one of the most popular types of secured loans and, thus is worthy of further elaboration. With this type of loan, you will have to give your vehicle’s logbook to the lender until you have paid back the loan in its entirety. Your logbook will then, of course, be returned.

A lot of people opt for this type of loan because it gives them the opportunity to borrow a decent amount of money and the repayment terms can often be favorable too as you tend to have a good length of time to pay the money back. Furthermore, it doesn’t affect them in relation to the use of their vehicles. The only way your car will become out of bounds is if you fail to meet the repayment terms you have agreed upon. 

Other Types

One of the most historic forms of secure loan is pawnbroking. Using a pawnbroker involves borrowing money in exchange for giving them valuables (such as jewelry, antiques, or other items of value) as collateral.

The maximum amount of money you can borrow is equal to the value of the item you trade-in. Provided you pay back the loan by an agreed date, you can get back your valuables. If you don’t, the pawnbroker is legally entitled to sell this item. Banks typically do not offer this service and you must visit a specialist pawnbroker instead. 

If you own a business, there may also be the option of a secured business loan. This involves using business assets such as commercial equipment or even s commercial building that you own as collateral. Secured business loans should not be confused with methods like merchant cash advance loans, which are still considered unsecured (although can be a lot less risky than other unsecured options, as you use future credit card/debit card sales to pay them off).


On a final note, it is crucial to recognize some of the main benefits associated with going for a secured loan. In most instances, you will find that this type of loan is much cheaper than an unsecured loan in relation to interest rates. This is because unsecured loans represent greater risk and thus, lenders tend to charge a higher rate of interest.

Of course, you can argue that the risk is more significant for you because you can potentially lose your car or your home. However, if you borrow responsibly and do not take money you cannot afford to pay back, you should be fine. You will typically be required to prove you can afford the repayments anyway. 





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