Understanding What ‘Secured Loans’ Really Are

You must have heard about different types loans like logbook loans and such loans, all of which have something discerning them from one another. While these loans have a limited radius, secured loans encompass a much greater spectrum. In fact, many of these loans you have heard of are actually secured loans. How? See, secured loans are nothing very technical. I should not have too much trouble explaining you the basic concept. When you take up a loan, and in return, pledge something as collateral for the loan, you have secured the debt. This makes this loan a secured one. Now the lender does not have too much risk associated with giving you the loan, as defaulting could automatically result in seizure of whatever it is you kept as collateral.

Take example of your logbook loans, when you take up this loan, your car serves as a medium of securing the debt. If you fail to meet your obligations towards the loan, you will find your car seized and sold eventually. Thus, when you apply for a logbook loan, you are securing your debt and assuring the lender about your creditworthiness. This is why most of the times secured loans attract relatively lower interest rates than their unsecured alternatives. However, you must understand that credit ratings still play a major role. This is because if I default on a secured loan, the lender would have to recover the amount by selling the collateral. However, by this time if the collateral is worth less than the amount borrowed, the lender would be faced with a difficulty. Plus, it is never really favorable to resort to selling the borrowers security. Therefore, while we do possess the ability to secure these loans, this ability is not enough to land us just the loans we point towards. But, yes, secured loans ensure that the emphasis on the credit rating factor is not very high.