To Take Secured Or Unsecured Loans?

What Are Secured Loans?


Secured Loans are loans where the borrower agrees to put property of value up for collateral when taking out a loan. If the borrower defaults on the loan, then the property can be confiscated as it has served as security for the debt. The creditor then has the right to take the property as per the security or collateral agreement that pertains to the loan. The property when taken by the lender can then be sold to recover some or all of the money that was loaned to the borrower.

If the sale of the particular property fails to raise the amount of money that was loaned, the creditor can sometimes obtain a deficiency judgment for the remaining amount of the loan.

These loans really have two purposes, the first being that the lender is largely relieved of the liability of having to worry about totally losing all of his money in case of the default of the borrower. The second purpose is that the borrower can sometimes obtain more favorable terms, such as lower rates of interest rates on the loan. Sometimes both instances are present, as it is in the interest of both parties to have a reliable, workable business transaction.

The definition of a non recourse loan is a loan that is secured and where the collateral is the sole security against the loan in favor of the lender. In this type of loan, there is no other recourse other than the one piece of collateral, and if the borrower defaults, then the borrower can foreclose on the loan against the property that is being held as collateral.

Collateral loans can be any type of property that has value and can be identified. Of course everyone is familiar with a home mortgage, where the home is the collateral for the mortgage loan. Then too, when we purchase a new car, we often use the same system to finance the car, in that we if fact mortgage the car as security against the payments that we agree to make over the time agreed to how long payments are to be made.

Pawn shops are another example of using property as collateral for a loan, as you can bring in the family heirlooms for security, and the pawn shop will loan you the money for those items. If you fail to pay of the loan by the time that it is due, then the pawn broker gets to keep the property. All things considered, it might be smart to go for guarantor loans same day payout instead of going to a pawn shop!