What are Secured Loans and How Do They Work?
Secured loans require you to provide an asset like your house or car as collateral. These types of loans can get you funds quickly and often come with more lenient requirements. Let’s take a closer look at what a secured loan is and how it works.
What is a secured loan?
A secured loan is a loan protected by a form of collateral, which is something valuable that you own. While collateral is usually a physical asset like a house, car, or boat, it may also be a cash deposit. You’ll only be able to take out a secured loan if you have the type of collateral required by the lender.
How do secured loans work?
Once you put up an asset as collateral and get approved for an secured loan, you’ll receive the funds. You can keep your asset as you make loan payments, and you may also be able to borrow more money and lock in a longer repayment period.
Before applying for a secured loan, make sure you’ll be able to repay the loan in full. If you default on your loan payments, the lender can seize your collateral.
Secured loans vs. unsecured loans
While a secured loan is backed by collateral, an unsecured loan is not. This means you can take out an unsecured loan without providing an asset. Since there is no collateral involved and the lender will take on more risk, these types of loans sometimes come with higher interest rates. Some examples of unsecured loans are credit cards, student loans, and personal loans.
Types of secured loans
Here are a few different types of secured loans:
Title loans
A title loan is a secured loan that uses your car as collateral. In exchange for your vehicle title, you can receive a lump sum of cash. The loan amount is typically 25% to 50% of your car’s value. If you default on your loan payments, the lender can seize your vehicle.
Mortgage loans
With a mortgage loan, you’ll provide your house as collateral. If you’re unable to repay it, your home may go into foreclosure.
Secured credit cards
A secured credit card requires a cash deposit as collateral. This deposit is typically equal to your credit limit, or the maximum amount of money you can spend on the card. If you default on your credit card payments, the lender can seize your collateral.
Business loans
To take out a secured business loan, you must have collateral like a commercial property or business vehicle. The lender will take your collateral if you fail to repay the loan.
Get an Advance America title loan today
Advance America title loans can get you the funds you need quickly to cover expenses. To apply, fill out a short online application form and visit a local Advance America location to get your vehicle appraised. If approved, you may receive your money the same day you apply. Your loan amount will be based on the value of your car, and you’ll be able to drive your vehicle as you repay your loan.
