How secured loans benefit you?

Author: James Peter

What are secured loans?

Secured loans are a type of loan that mandates the borrower to pledge some assets in the form of collateral while trying to acquire the loan. The collateral can vary from real estate to blanket liens, depending on the borrower and the total loan amount. If the borrower defaults, then the lender has the right to confiscate the property and if the collateral does not cover the total amount of loan taken, then the lender has the right to obtain a deficiency judgment against the borrower.

Secured loans give powers to the lender in case of a default, making them the most secured loans. The borrowers must repay their loans on time otherwise, the collateral is at a huge risk of collateral damage.

What are the types of secured loans?

There are 4 types. Let’s learn more about them.

  • Mortgage Loans: It’s a type of secured loan where the collateral is the property, such as a home, apartment, etc.
  • Nonrecourse Loans: It’s a type of secured loan that can be secured by a pledge of collaterals, mostly real estate. In this case, the borrower is not personally liable. This means that if the borrower defaults to pay the loan, then the lender can confiscate the property, but cannot obtain a deficiency judgment against the borrower.
  • Car Loans: It’s a type of secured loan where the collateral is the car itself. If the borrower defaults to pay the loan, then the car is taken by the lenders and later auctioned.
  • Home Loans: This is exactly like a car loan, but here the home acts as the collateral.

Who can get a secured loan?

If you wish to buy a home for your family, going for a secured loan can benefit you in numerous ways. Else, if you want to buy a car or want to scale up your business then secure loans are the best options. This is a type of loan where both the lenders and the borrowers get a fair deal. You, on the other hand, get shallow interest rates and the lender get the guarantee that his money is safe and will reach him on time. In the case of default, the lender has the right to sell the collateral and claim the money.

Let’s dig into some of the eligibility criteria for secured loans:

  1. Age: +21 & above
  2. Residency: Should be a UK resident
  3. Address: Must be a UK address
  4. Income: Regular stream of income
  5. Bank Account Status: Should be Active
  6. Bankruptcy: No history of bankruptcy in the past 1 year.
  7. Collateral: Required. Can be of the form, real estate to blanket liens

Now that we have a clear picture of it, lets, dig in and find out its advantages.

Advantages of secured loans

So far, we saw how the lenders were getting benefited with secured loans, this doesn’t place the borrowers in a tough spot but rather in a wonderland. When a borrower uses collateral for a loan, this automatically brings the high-interest rates down to knee-high interest rates. The reason why secured loans have shallow interest rates is the collateral. The collateral acts as a guarantee to the lender of you to pay back his money, if not the lender has the collateral. Let’s list out the advantages that you benefit from secured loans:

  • Easy availability of loan
  • Forces discipline of repayment
  • Builds your credit score by a great factor
  • Lower interest rates
  • Can borrow bigger amounts.

The number of benefits a borrower gets is double than a lender gets.