Secured Loans: How They Offer Lower Rates and Flexible Terms

Borrowers who use secured loans can usually get larger amounts than they would with loans that don’t require collateral, at less risk to the lender. That’s because the property put up for a secured loan increases the probability of repayment. So, these loans are often win-win opportunities.

For example, a car title loan is a kind of secured loan, and getting one is relatively easy. Title loan requirements are basically ownership of a vehicle in your possession and steady income.

Here’s what those who need to borrow should know about the benefits of secured loans.

What is a Secured Loan?

Those who take out a secured loan let a lender put a lien on a physical asset they own, such as a house or car, in exchange for borrowing money. This gives the lender additional security that the loan will be repaid. Why? Because if you default on the loan, your property can be seized and sold to recoup the outstanding loan balance.

Because most secured loans are installment loans, you’ll receive a lump sum and make equal monthly payments until the loan is repaid. Repayment terms can range from one to 30 years, depending upon whether you’re taking out a personal loan or mortgage loan.

Benefits of Secured Loans

There are some key advantages to secured loans. Those include:

• They’re easier to get. You can get a secured loan with credit scores that are lower than what would be required for unsecured loans, which don’t require collateral. You also need less income.
• Larger loan amounts. You may be able to get a bigger loan with a secured loan as opposed to one that’s not secured. Loan amounts for unsecured borrowers are typically capped at $50,000.
• Lower average interest rates. Because of the collateral, it’s typical for lenders to offer rates for secured loans that are lower than for unsecured ones. Unsecured loan rates can reach 36% for borrowers with bad credit.
• Potentially longer repayment terms. Those who take out secured mortgage loans commonly have as long as 30 years for repayment. Contrast that with loans for unsecured loans, which are typically limited to one to seven years.

Drawbacks of Secured Loans

As with most anything, there are also potential downfalls to secured funds. Those include:

• Risk of property loss. Lenders can take the property you offered as collateral to collect on an unpaid secured loan. So, you must be absolutely sure of repayment before taking a loan out.
• Your property may not qualify for a loan. Depending on the lender, not every asset will get you a loan. The value of your home, car, boat or other assets will be evaluated to determine whether it’s sufficient to support the loan for which you apply.
• The process could be lengthier. Compared to unsecured loans, the secured loan process may require more paperwork and take longer to fund than unsecured loans.

There are a number of benefits to secured loans, including the potential ability to request larger dollar amounts. They especially help those who lack the requirements for an unsecured loan, want a lower rate, or wish to borrow a large amount.

But these loans take longer to get. And most importantly, you must be sure you can repay a loan for which you’ve given collateral, or risk losing your property.