Secured Loans

There are often times when certain expenses come along that we simply don't have the money to hand to deal with, and in some cases the amount of money needed is relatively large. Perhaps your family is growing and you need to buy a larger and more practical car, or buy all the paraphernalia needed to look after a newborn. Maybe you are just fed up with your old car refusing to start on those cold, wet mornings, or just feel that you and your family deserve a much-needed holiday. Whether the reason is a true necessity, or a treat because you feel you need it, unfortunately all of these things cost money.

Secured loans can provide you with that money, and can do so at very low interest rates meaning that the cost of borrowing the money is also low. The way secured loans work is very simple, the lender gives the borrower the money under an agreement that the borrower will repay this principal along with interest at regular intervals until the full amount is repaid. The borrower puts forward some form of collateral as security for the loan amount (usually in the form of their home, hence secured loans are often referred to as homeowner loans).

The security benefits both parties - the risk to the lender of loosing the money lent is significantly lessened as they can reclaim it through the sale of the collateral, and the interest rate offered to the borrower is less than a comparable unsecured loan because the lender is taking on less risk.

With all loans being assessed in terms of the risk to the lender of non-payment (known as bad-debts), anything that reduces this risk will have an influence on the cost of the loan. A lower risk generally means a lower APR (annual percentage rate) (see APR spotlight), which is the measure of the overall cost of the loan to the borrower. As well as giving lower rates, secured loans will also generally have much higher borrowing limits when compared to unsecured loans - these limits will vary from lender to lender, but will depend to a certain extent on the value of the security put in place, and the financial situation of the borrower.

As secured loans require that the borrower puts up collateral, and this is in the vast majority of cases only allowed in the form of the borrower's home, these types of loan are only available to those who are homeowners. For tenants, or those who do not wish to use their home as security, unsecured loans are the only option.

Secured loans are a very good financing option for those looking for low interest rates, and equally for those who wish to borrow large sums of money that exceed the limits imposed by other loan types.