You may be considering taking out a secured personal loan for a number of reasons, from getting the money that you need to do various home improvements to consolidating your debt and trying to overcome your past credit problems. They can fill a number of roles in your financial life, but it's important that you understand how these loans work if you're going to try and use one.

Below you'll find more information about taking out this type of loan, as well as some of the advantages and disadvantages of this type of borrowing.

Defining the Loan

A secured personal loan is a loan in which you agree to present some item to the lender who is issuing the loan as collateral to guarantee repayment of the money that you borrow. If you're not sure what collateral is, it is some item of value that is used as a physical form of security that the lender won't lose money on the transaction. Though automobiles and real estate are the most common types of collateral, other valuable property such as jewelry, antiques, and anything else that has a definite value and a market for it may be used as well. In exchange for you putting your collateral item on the line, a secured online loan can offer certain benefits that unsecured loans cannot.

Benefits of Using Collateral

Secured loans offer three important advantages over unsecured loans. The first advantage is that the borrowed amount can be significantly higher than it would be if the loan were unsecured. The second advantage is that the interest rates on the loan that you take out will likely be much lower than those on an unsecured loan, meaning that the monthly loan payments that you make will be much more affordable than they would be otherwise.

Finally, secured loans may be offered to you even if you have been turned down based on credit. All three of these advantages are offered to you because your loan is secured against valuable collateral and the lender is guaranteed that they'll be able to get their money back no matter what. Unfortunately, these advantages can become part of a major disadvantage to individuals who take out a loan haphazardly or without careful consideration of the cost of the money that they borrow.

Disadvantages of Secured Loans

The one major disadvantage of a secured personal loan is that the property used as collateral may be repossessed and sold or liquidated if payment requirements are not met. If a borrower fails to pay after several collection attempts by the lender, then it's likely that the property will be lost as a result. With such a financial obligation, it is important that you make sure that you'll be able to make your loan payments on time for the duration of the loan. Take the time to carefully plan out your payments and work out a thorough budget before you submit your final loan application and borrow the money that you want.

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