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What is a Secured Loan?

The Value of money today has far lesser value than it was 50 years ago. This is the reason why most people today would need more cash to be able to purchase expensive but necessary items such as a car or a house and lot. The amount of cash people earn or have in their savings today is usually not enough to pay for the major necessities needed to at least have a comfortable life. This is the reason why more and more people are applying for any type of loans from various financial institutions to be able to meet the necessities of their day to day activities.

Types of consumer credit and loans vary and they all come in various forms and conditions. The simplest is the promissory note which is normally transacted between friends, relatives and with small financial institutions such as a pawnshop. A more complex type of loan is usually provided by a loan company like a bank and other higher form of financial entities. These types provide higher loans that can amount to millions of dollars. However they carry payment terms and conditions that are stricter and more complex in nature. These loans are usually availed for the purpose of opening up a business, and/or purchasing properties such as a house and lot. Contracted loans are generally controlled by laws enacted by a country’s government where the lender and the borrower belong to. This is to legally protect both the lender and the borrower from any problems that may arise from their loan transaction. These laws are able to protect the borrower from abuses of the lender such as placing a very high interest rate on the loan while the lender on the other hand is protected from financial losses due to uncollected debts from the borrower.

Generally most types of financial loans fall under the category of Secured loans. Secured loans are loan amount secured against the borrower’s fixed assets. The asset secured for the loan will is referred to as “collateral”. The way it works is that in the event the borrower defaults on the loan, the lender will have the legal right to recover the rest of the unpaid loan by foreclosing on the borrowers collateral or secured assets. In most cases, secured loans can also be some kind of flexible loans because the interest rate placed on these kinds of money transactions are low and often negotiable. The Interest rates are usually close to the prime rate offered by most financial institutions and the payment terms and condition are very manageable to the extent that that the loan can be structured as “interest-only payment”. This means that the borrower can forego paying the principal amount for a period of time and is only required to pay the interest (usually) on a monthly basis. Car loans, High end recreational vehicle loans (such as boats, RVs, Aircrafts, etc.) mortgage loan, home equity loans and home equity lines of credit usually fall under the category of secured loans. Considering that this type of loan is fully secured, people who apply for this type of loan, have a good chance of getting their applications approved.