The Different Types of Secured Loans
Secured loans are loans where the borrower presents collateral in form of assets such as vehicles, land or even a home. Due to the property acting as security in any form of risk in the future during the loan repayment procedure, the secured loan further takes up another name, secured debt.
The fact is that secured loans are debts that have been secured against the aforementioned collateral on the account that the borrower may not be in a capacity to completely clear the debt as per the contract. The work of the asset or property used as collateral is therefore, to act as security in case the borrower defaults and thus giving the lender the right to repossess that particular property and later selling it to recover the entire amount as per the contract agreement.
When the lender concentrates on collateral in terms of property and other assets, which can be sold to recover the amount that has been lent to the borrower, this type of loan is known as a secured loan, however, when none of the mentioned needs to take place and can still afford to lend an agreed amount to the borrower, the loan is termed as unsecured. Secured loans always attract substantial interest rates that the borrower may be able to account for with ease as compared to unsecured loans. Factors such as the ability to repay the loan and the nature of the credit history can be used to dictate the probability of accessing unsecured loan contrary to secured loans where the mentioned may not apply.
Why secured loans would be a better choice
Evidently, creditors find secured loans a better choice as they can be able to repossess the property thus covering the borrowed amount. Creditors in this case are normally relieved most of the risks associated with borrowing funds such as untimely death of the borrower, or even bankruptcy. On the side of the debtor, it would be easier for them to access secured loans on favourable terms in accordance with interest rates and other factors affecting borrowing of money from lenders. Not only, that, factors such as credit history and past debts are considered unnecessary as compared to unsecured loans where in most case’s credit checks are a must.
Types of secured loans
There are different types of secured loans and these may include mortgage loans, nonrecourse loans, foreclosure loans, as well as repossession loans. When the collateral becomes your home or other related property, this type of loan is known as a mortgage loan, whereas a nonrecourse loan is the type of loan where the only thing, the lender has as security is the collateral submitted by the borrower. Foreclosure entails court order to resell a property in order to recover debt by the lender whereas the repossession is whereby the creditor has the right to repossess any property of the borrower, in case he or she fails to clear payments are agreed. This sometimes can require a court order, but there are times when it may not as per the jurisdiction.