A loan is helpful for home repair, healthcare expenses, car repairs, or unforeseen expenses. Loans come in handy when you don’t have enough cash to cover a specific purchase. It is important to note that not all loans are the same.
A secured personal loan is a type of loan that uses collateral as a promissory to repay the debt. The collateral from the borrower is used as loan security and protection.
How Do Secured Loans Work?
With a secured loan, the borrower uses assets as a promise to pay back the loan. A secured loan grants the lender rights to claim your assets as a form of payment if you default on the loan.
A secured personal loan can use collateral such as houses, paid-off vehicles, jewelry, and other expensive items.
A lender can place a lien on the assets used to secure the loan. After the loan is paid in full, the lien is released from the collateral. During the loan repayment term, the lender can use your lien to repay your loan if you default or miss a loan payment.
Secured Loans vs. Unsecured Loans
A secured loan is different from an unsecured loan. Collateral in the form of tangible assets protect a secured loan. An unsecured loan does not use collateral as protection. An unsecured loan is not protected, and therefore it can pose a higher risk for lenders.
7 Benefits of Secured Personal Loans
- Higher Approval Rates
A secured personal loan has a higher chance of being approved as opposed to an unsecured loan.
Lenders like to see that their money is protected. The collateral used for a secured loan helps to increase the rate of loan approval.
- Larger Loans
Typically, with secured personal loans, you are able to borrow more money. Using collateral reassures the lender that they will be repaid.
Lenders are more likely to give larger loan sums to people that can secure their loan. The reason for this is because the lender will get paid no matter what. Either through loan payments or collecting from collateral.
- Lower Interest Rates
Interest rates are based on the amount of financial risk to a lender. This is why people with poor credit scores typically have higher interest rates.
A secured personal loan has higher credibility and protection. Therefore, the interest rates are lower compared to the rates of unsecured personal loans.
Secured loans have fewer risks and losses for the lending institution. As long as you have a decent credit history, stable income, and valuable collateral, you can expect a low-interest rate.
- Better Loan Repayment Terms
Better loan repayment terms are another benefit of a secured personal loan. These loans are often accommodated with longer repayment terms.
The repayment term is dependent on the loan amount and interest rate.
- Less Likely to Need a Co-signer
A co-signer is sometimes needed as an added protection measure for loan lenders. The co-signer is responsible for the loan repayment if the primary borrower defaults on the loan.
Finding a co-signer can be a hassle. Luckily, with a secured personal loan your collateral and assets are used as a loan protection plan. As a result, there is a better chance of you being approved for a secured personal loan without a co-signer.
- Build Your Credit
Most lenders report to the major credit bureaus. Staying on schedule with loan payments can improve your credit score. Also, paying off the loan in full reduces the amount of debt on your credit report.
Not only will paying a loan on time help your credit, but it is also beneficial to future borrowing needs and requests from lending companies.
- Motivation to Repay The Loan
Lastly, the final benefit of a secured loan is the motivation to repay the loan. The personal collateral used for the loan will have a lien until the loan is paid in full. Potentially, this can serve as motivation to repay the loan faster.
There are numerous benefits of secured personal loans. Consider RapidLoans personal loans as your lender for secured personal loans. They are trusted and well-known choices that can help you with your financial needs.