A secured loan has some type of security attached to it. This means that if you default on your loan, the lender can take possession of this security and sell it to cover their costs. As such, a mortgage is a type of secured loan.
People take out these types of loans for a variety of reasons. You may, for instance, want to lend quite a high amount of money. Perhaps you want to improve your property, consolidate your debt or more. Alternatively, you may have a poor credit history, in which case secured loans are the only option out there for you. Because you offer a lender security, they will be more forgiving of your credit history.
How Can You Get a Secured Loan?
You don’t have to be an outright home owner for a secured loan. If you want to secure it against your property, however, you do have to have equity against which you want to secure it. Alternatively, you can apply for different types of secured loans that have been specifically designed to help people in a financial emergency who also have bad credit. These all tend to be low amount loans with high interest rates, but very short running times, generally one month. Let’s take a look at some of these options.
With a pawn loan, you hand over an item of value to a pawnbroker. This could be a piece of jewelry, an expensive item of clothing, something electronic and so on. The pawnbroker determines the value of your item and pays you this, and you then have a set amount of time to pay that back, with interest. If you do not pay it back, the pawnbroker becomes the new owner of your item and will then sell it in their shop.
With payday loans, you secure a loan against your next payday. This means that when you get paid, the lender will automatically take the loan principle and interest out of your account. Generally speaking, you will not be able to lend more than 50% of your monthly income, as the lenders need to be careful that you are able to meet your various financial obligations in the month that you pay your loan back as well.
Title loans are loans secured against your vehicle. This means that you have to have a clean deed on a vehicle in order to apply. The lender will determine the value of your car and lend you money against the value. Usually, the maximum they will lend you is 50% of the value of your car, up to a maximum of $2,000, although there are exceptions. This loan is designed to run for one month, at which point you pay back the loan principle and the interest.
As you can see, there are numerous different secured loan constructions out there to consider. You must always first think whether there is any way to meet your obligations without borrowing money, however.