All about secured personal loans
Secured loans are loans in which the lender requires the borrower to offer an asset as collateral. If the borrower is unable or unwilling to repay the loan, the lender then takes possession the collateral and sells it to recover the outstanding principal and interest.
Generally speaking, secured personal loans are for larger amounts of money. However, depending on the borrower's financial situation and credit history, even small loans can require collateral.
Types of Secured Loans
Many different loans require collateral. In many cases, the collateral offered is the very same thing the borrower intends to use the money to buy. Secured home loans and secured business loans often work this way. Almost all secured home loans require the borrower to offer the house they're buying as collateral, and secured business loans will usually hold company property or other assets as collateral.
Bad credit secured loans may require the borrower to put up an asset with a value exceeding the loan amount. This is done because borrowers with bad credit are a greater risk. Also, if you're borrowing and you have bad credit, you should expect less money to be available to you. Your interest rates will also be higher than those offered to borrowers in good standing.
Collateral for Secured Loans
While unsecured loans don't force you to put any of your own assets at risk, this isn't the case when you're borrowing a hefty chunk of change. Depending on the amount of money you're borrowing, you may be asked to put up your house, your car, your cash, or your stocks, bonds or other securities as collateral.
If you put up your house, you should have an understanding of how liens work. A lien is a type of security that entitles the lien holder to make a legal claim to your house if you default on your loan obligations. In the United States, a lien grants the lien holder the right to take possession of (but not sell) the asset if you default. To actually sell the house, the bank must go through the legal process of foreclosure to liquidate the lien.
Taking out secured personal loans is only a good idea if your employment or income is stable and predictable. Otherwise, it may not be worth the risk you'll be taking, and good judgment is the key to financial security.