Secured loans are loans that are tied to an asset or collateral of some sort. There are many uses for secured loans.
Often the loan is used to purchase the underlying asset, but not always the case. Consider the purchase of a car or home. A secured loan is used to purchase the asset, which in turn is used as collateral on the loan. In most cases the financing company will hold the title or deed to the underlying asset.
Almost any asset can be used for collateral on these loans. Mortgage loans, home equity loans, and car loans are very common secured loans. The type and value of the collateral being used effects the terms and conditions of the secured loan.
A mortgage, for example, will usually receive better terms than a loan secured by a car:
* The value of the home will likely increases, whereas the car’s value will decrease, making the home a better long-term risk
* People will typically do everything in their power to keep from losing their home and are likely to fail to pay their mortgages as a last resort
* Houses are stationary, where cars can be moved, in the event that the finance company needs to take possession it is easier to track down a house
Even with less favorable terms and conditions secured loans remain one of the best ways to obtain large sums quickly.
Debt consolidation loans are also fairly common. Often these are simply home equity loans that are taken solely for the purpose of debt consolidation. Unsecured loans will typically be more expensive than secured loans.
Credit cards, for example, typically have higher rates than equity loans. Using the equity in your home to take a loan in order to pay off those high-interest credit cards can often prove to be a good idea.
Secured loans sometimes have other advantages too. If the loan is secured by your home you may be eligible for a tax deduction on the interest you pay.
Secured loans are very common and an excellent way to obtain large sums of money. As with any and all debt be sure to fully understand the terms of the loan before agreeing to it. Because secured loans are backed with collateral they present less of a risk to lenders than unsecured debt and therefore typically have better terms.
Save yourself money- consider consolidating your high interest rate unsecured debt with a secured loan.