What are secured loans?

A secured loan is a type of loan where the borrower puts an asset (such as a property or car) down as collateral. This is now a secured debt owed to the lender by the borrower. If the borrower does not repay the creditor and defaults on the loan then the creditor can sieze the asset by law, and can if they wish sell it in order to recoup the money they are owed.

The opposite of secured loans are unsecured loans. These are loans and debt that is not secured against an asset and the creditor will attempt to satisfy any debt against the borrower themselves rather than any particular asset they own.

Loans secured by an asset exist for 2 reasons. The main reason is that there is much less risk for the lender. They know that if the borrower does not repay the loan then they can seize and sell their asset to get the money back. This means that the reliability of the borrower repaying the loan on time and in full may be less important to the lender as they now have the value of the asset to fall back on.

The second main reason follows from this fact. The creditor now sees the borrower with a secured loan as being much less of a risk and can therefore give credit to people who may otherwise be refused. Some types of secured loan have no credit check carried out so borrowers who would have otherwise been refused can no get credit and loans. The secured debt also means that the borrower can get better interest rates and better repayment schedules than they would on an unsecured debt.

Examples of secured loans

Mortgage loans: a loan secured on property e.g. the borrower’s home is used as collateral.

Foreclosure: this is where the creditor takes possession of and sells the property to recoup the money they are owed when the borrower defaults on the loan

Logbook loans: these are loans secured on your car, although other types of vehicle can also be used as collateral.

Repossession: this is where the lender seizes and sells the car or vehicle in order to get the money they are owed from a borrower who defaults on the loan.

Disclaimer: A logbook loan is secured on your vehicle. Your vehicle is at risk if you do not keep up with repayments. CompareLogbookLoans.co.uk is not a lender and does not give financial advice. All loans are issued by third parties.

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