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.