What is a Personal Loan?
A personal loan can be defined as a debt taken on by an individual. One example is your mortgage, which is an arrangement to borrow money from a financial institution to be able to buy a home. You then pay the money back over a defined period of time. The lender charges you interest for the privilege of lending you the money. Interest is, basically, a percentage of the balance of the loan, which may vary based on your credit history, the amount of money you’re borrowing, the national interest rates, and the whims and terms set forth by the lender.
What is a Secured Personal Loan?
When you take out a secured personal loan you give the lender rights to property of some kind that may be seized if you stop or get behind with your payments. This ‘seizable’ property is known as collateral.
What can be Used as Collateral?
There are a whole variety of things that may be used as collateral to secure a personal loan, including homes, vehicles or land. Some lenders will also consider securities such as personal savings accounts, stocks, bonds or luxury items – what they are looking for is something that is worth significantly more than the amount you’re borrowing. In the event that you don’t pay your debt, your lender will sell the collateral in order to get his money back.
Advantages of Secured Loans
- You can borrow significantly more money than you can with an unsecured loan
- Interest rates are usually much lower for secured loans than for unsecured loans
- You are more likely to get a secured loan than an unsecured loan if you have a bad credit history
Disdavantages of Secured Loans
Just the one – if you don’t keep up with the payment plans, you will lose whatever property you have put up as collateral.