NEW YORK, March 27, 2023 (Newswire.com) - OneMain Financial: A secured loan is backed by collateral, an asset such as a car or a house. When a borrower pledges collateral, the risk to the lender is reduced, and it may be easier to get a loan than if the loan was unsecured. However, if the borrower fails to make payments for a secured loan, the lender can seize the collateral. Therefore, getting a secured loan is only wise when the borrower is confident they can repay it.
Types of collateral
- The several types of collateral borrowers can use for a secured personal loan include:
- Houses
- Cars
- Boats
- Cash in savings accounts
- Cash in a certificate of deposit (CD)
- Stocks and bonds
- Fine art, jewelry, precious metals, antiques, and collectibles
Pros of a secured loan
A secured loan that's tied to collateral has some benefits, including:
- Easier to qualify for a loan: If a consumer has no credit or bad credit, it may be easier to obtain a loan if collateral is available. Also, since pledging collateral can reduce lender risk, the loan amount may be more than if no collateral was available.
- Lower interest rate: A secured loan may have a lower interest rate than an unsecured loan.
- May improve credit: If the borrower makes on-time payments, they may be able to establish credit or improve their current credit history because most lenders will report the borrower's payment history to the three major credit bureaus.
Cons of a secured loan
While a loan secured by collateral may have some benefits, drawbacks may include the following:
- Collateral is required: A secured loan is not an option unless the borrower has collateral. This may be a house, car, boat, or anything else of value that's acceptable to the lender.
- Collateral can be forfeited: If the borrower defaults on a secured loan, the lender will have the right to seize the collateral.
- Potential use restrictions: Many lenders are flexible with how the borrower may use the proceeds of a secured loan. Some lenders, however, are strict and will not allow the loan to be used for purposes like education costs or gambling.
What to know before signing a loan agreement
Not all secured loans are created equal. Before the consumer signs on the dotted line, they should research to learn about all available loan options. Before moving forward with a loan, it's important that the consumer understands and accepts conditions like these:
- Interest rate
- Fees
- Repayment schedule
- Monthly payments
- Whether there are penalties for an early payoff
- Payment flexibility in the event of financial hardship
The Bottom Line
Secured loans are an option for consumers with something of value to pledge as collateral and believe they can repay the loan in full and on time. Before committing to this type of loan, it's in the consumer's best interest to shop around and compare various lenders and their products.
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Original Source: OneMain Financial: Items That Can Be Used as Collateral for a Secured Loan
