Secured loans are loans which cannot be acquired without any form of collateral. Collateral refers to an asset belonging to the borrower of the loan and whose value is equivalent or a little more than the desired loan. In a collateral agreement, the borrower and the lender agree to sell the asset or assets for purposes of recovering the money in a situation where the borrower is not able to pay back the loan. A secured loan normally favours the lender because it provides security against any loss of funds if the borrower fails to pay back due to circumstances beyond one’s control. In the case of an unsecured loan, the borrower is not required to have any form of collateral to be eligible for a loan. The following passage highlights some of the most notable advantages of secured loans.
Low interest rates
Compared to more than half of the unsecured loans that are available out there, secured loans are associated with very low interest rates. As a matter of fact, the major factor worth taking into account before borrowing a loan is the value of the interest rate. This is the factor which greatly affects the affordability of a loan. If the interest rates are very high, paying back the loan would be very difficult. High interest rates also limit the borrower’s range of borrowing. On the contrary, low interest rates make a loan affordable and easy to pay back.
Credit history may not be a big issue
Although most secured loans are associated with a good credit score, some financial lenders may care at all. This is usually the case if the borrower had been guilty of a single late payment or merely failing to repay a loan due to certain circumstances beyond the capacity of a borrower. This may not worry the lender provided the collateral provided by the borrower is sufficient to warrant the processing of a loan.
More money can be borrowed
Unlike an unsecured loan, a secured loan is easy to lend out. After all, the risks of losing money are very slim. That is why financial lenders are more than willing to lend out hefty sums of money to their clients. They fully understand that their money may be recovered easily even if the borrower failed to pay back. This explains why secured loans can enable you to borrow more money compared to unsecured loans.