The term “Secured Loan” refers to the loan that is aptly backed up by collateral (a security pledged for the repayment of a loan). To put it simply, in a secured loan the borrower pledges one or more of his assets such as a house or a car to borrow the desired amount. If the borrower fails to repay the loan, the lender retains that asset.
Pledging of an asset to the lender enables the lender to reduce his risk. This in turn helps the borrower get a bigger loan amount that can be repaid over a longer period of time. Bigger amount does not mean that the borrowers can get the amount they want.
In fact, the amount that lender would be willing to offer as loan, the repayment term, and the Annual Percentage Rate (APR) depend on a number of factors. These factors include value of the borrower’s property as well as the financial status of the borrower. Apart from these two factors there can be other incidental factors as well.
A secured loan offers quite a few advantages. One of the key advantages is that a secured loan enables the borrower to get a hefty loan. And since the borrower pledges an asset to the lender, the repayment duration can be stretched a bit. The lenders too have an advantage. They get the security, as in case of non-payment of the loan amount, the borrower forfeits the asset pledged to the lender.
Here is a word of caution. If you are planning for a secured loan, don’t go rushing around. Do proper research, compare the different offers, and then take a decision.
