Smart Guide to Secured Personal Loans

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There are two major types of personal loans which are unsecured and secured personal loans. Each type has pros and cons as is true with any type of debt. But if you wish to take out a large amount of loan for a major investment or a major expense, you are better off taking out a secured loan. Just remember that the risks are also higher than unsecured loans. In any case, here’s a smart guide to secured loans to help with your loan decisions:

What are secured loans?

Secured loans, as the name suggests, are loans that are secured against an asset or a type of collateral. To avail the loan, you need a property such as a home or vehicle to use as collateral. Since there’s a security involved, loan amounts are significantly higher, rates are lower and repayment periods are longer. In other words, these types of loans are ideal for property owners who need a large amount of loan for a major financial need.

What are the types of secured loans?

There are many types of secured loans but the most common of which are mortgage, home equity loan or line and auto loans.

If you’re excited to buy your first home and need help with financing, getting a mortgage loan is the way to go. Just remember that this is most likely going to be one of your most important purchases. Before you say yes to a mortgage deal, don’t rush into signing anything. Take your time, compare your options and do your homework.

Another common type of secured loan is home equity loan or line of credit. In general, you can borrow up to 80% of your home’s current market value minus your mortgage balance. This type of loan, therefore, is designed especially or home owners. With home equity, you can avail of a one time lump sum to cover a major expense or you can open a line of credit which can give you ongoing access to your home equity


If you own your vehicle and it’s free or almost free of any financing, you can use it as collateral for your personal loan. You may also consider refinancing your auto loan if you want to free up some cash you can use to meet other financial needs.

Other types of secured loans you may not know about involve your savings accounts, CDs and other types of investment as security. Compared to the aforementioned secured loans, this type is generally easier to get approved for. Processing is also very speed. In fact, you can get your funds within hours or the next business day provided that you meet the requirements.

How secured loans work?

Secured loans as opposed to unsecured loans are more complicated since there’s a security involved. Your lender will have to keep your property title or deed meaning temporary ownership is essentially handed over to your lender. This means you could lose your home, vehicle or any asset which you used as collateral for the personal loan if you are unable to repay the loan.

While secured loans offer some advantages such as high loan amounts and lower interest rates, the risks involved are also higher. Make sure you know what you’re getting into before going through with the loan application. As a simple rule, borrow only what you can afford and what you need to avoid losing your property and face any financial consequences you may be unable to handle in the end.

6 Questions to Ask Before You Borrow Money


Maybe you need to borrow money to pay for car repair, an overdue bill or to cover last month’s bill. Maybe you’re buying a new car and you need down payment. Maybe you’re starting a new business and you need additional capital. No matter your needs are, borrowing money comes with advantages and disadvantages. It is a major decision you need to carefully and thoroughly think through.

To help you make sure whether borrowing money is the right route to take, here are key questions to ask:

Do you really need the loan?

One of the first things to ask yourself if you’re thinking of taking out a loan is if you really need it or if you just want the promise of quick cash. Remember that there’s a difference between need and want. Sometimes, borrowing money is not the answer if you just want it because you can. So before you sign any dotted line and add some strain to your budget, it’s best to get it right from the beginning. Between need and want, the former is always the better reason for a loan.

How much can you afford?

Other than the why behind the loan, the other equally important factor to consider when borrowing money is your budget. Sit down and take your time to check your budget. Find out how much you can comfortably afford to set aside for loan payments per month so you won’t have to worry about due dates later on. If you think you’ll find it difficult to take care of repayments, it might be best to postpone the phone for now.

What is the interest rate?

You’ll also need to find out the total amount you’ll need to repay. This means finding out about the interest rate, hidden fees and other charges associated with the personal loan. Interest rates usually vary from one type of loan to another. Make sure you do your homework and compare your loan options accordingly. Remember also that some borrowers may advertise low interest rates but bleed you out with hidden fees. Always make it a point to read the fine print to know more about hidden fees.

How long will it take to repay the loan?

In addition to finding out what you can afford, you should also take a look at the repayment period. Some loans require you to repay the money in less than a year. Others may offer longer terms. Secured loans, for example, let you repay the loan for years depending on the amount and type of security involved. You can also tailor the amount and repayment period according to your budget to ensure you’ll be able to handle the monthly repayments without glitch.

Does the loan require collateral?

Short term loans generally do not require collateral which means loan amounts are also smaller as opposed to secured personal loans. If you need a large amount of money for your financial needs, you’ll have to consider what type of collateral you can use to secure the loan. There are many types of secured loans to compare when you’re ready to take out a personal loan.

What happens if you delay or miss a payment?

If you carefully considered your need and budget, missing a payment shouldn’t be a problem. But it can still happen so it’s best to cover all bases. Before you sign any debt agreement, ask your lender about delayed or missed payments and how much charges or hidden fees it may add to the total cost of your loan.