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What is a Secured Loan?

Secured loans are a type of loan that requires using a personal possession or asset as collateral to back (or “secure”) the loan.

With a secured loan, the valuable item that you offer up as collateral is used as a form of insurance for the lender, who would otherwise lose all the money they lent you if you defaulted on their loan.

When you’ve offered an item (or items) as collateral, the lender is able to take possession of those items if you default on your loan, ensuring that they will be able to recoup at least some of the money that they let you borrow, and which you promised to pay back.

That may sound like a bad deal to you, the borrower, but you’d be wrong to think that way, because secured loans are not only one of the most affordable types of personal loans, but they’re also one of the only forms of installment loans readily available to people with poor credit.

This post covers secured loans in detail, explaining the differences between secured loans and unsecured loans, talking about the pros and cons of secured loans, and explaining the many different types of secured loans available today.
 

Secured Loans vs. Unsecured Loans

The biggest difference between secured loans and unsecured loans is that unsecured loans do not require collateral.
Many people tend to think of unsecured loans as the better way to borrow money, but that’s simply not true.

The reason secured loans are a better way to borrow money is that they carry significantly less risk for lenders, so lenders are more willing to lend you money at a lower borrowing cost.

In fact, a detailed comparison between secured loans and unsecured loans shows:

  • Unsecured loans tend to be more expensive, because they typically come with higher interest rates and more expensive start-up costs (“origination fees”)
  • Unsecured loans tend to be more difficult to qualify for, since lenders have to be more careful when deciding who they’ll lend money to
  • Unsecured loans tend to be significantly smaller than secured loans, since lenders are less willing to dole out large loan balances without the insurance provided by collateral

The difference between secured loans and unsecured loans rest entirely on the function of collateral, and here’s why:

  • With secured loans, lenders don’t have to worry about borrowers defaulting on their debt.
  • When borrowers default, lenders can simply take the borrower’s collateral, sell it, and apply the proceeds of the sale to cover the loss of the money that the borrower refused to pay back

You should think of collateral as serving like a form of “insurance” for the lender. Collateral is what ensures that the lender won’t lose everything if the borrower defaults on their debt.In that way, collateral is the only thing that protects lenders from going bankrupt when their borrowers default on a loan.

Stop for a moment and put yourself in the shoes of a lender – if you were going to let someone borrow money, which way would you prefer to do it?

  • Would you offer loans without requiring any sort of collateral in trade?
  • Or would you require that your borrowers offered up a form of collateral, so that you could recoup your losses if they chose to default on their debt?

Once you understand where the lender is coming from, it’ll be easier to understand why secured loans make the most sense for both lenders, and borrowers.
 

Pros & Cons of Secured Loans

When determining which type of loan would be best for you, it’s important to consider the pros and cons of each form of lending.

That’s an easy process when it comes to secured loans, because they’re relatively straight-forward.

Pros include:

  • Secured loans tend to have the lowest borrowing costs (lowest interest rates, fees, etc.)
  • Secured loans tend to provide larger amounts of money (compared to unsecured loans)
  • Secured loans tend to offer longer repayment terms (compared to unsecured loans)
  • Secured loans tend to be easier to qualify for (compared to unsecured loans), and are usually the only form of lending for people with bad credit scores

Cons include:

  • Secured loans require owning some form of asset that can be used as collateral, so they’re only available to people who own something of value (like a car, a house, stocks and bonds, etc.)
  • Secured loans could lead to losing your collateral, since defaulting on your loan will allow the lender to legally seize whatever asset you offered as collateral for your loan

At the end of the day, secured loans come with far more pros than cons, which is just one of the many reasons making them your best choice for borrowing large amounts of money.
 

Interest Rates for Secured Loans

When it comes to borrowing money, the interest rate is the most important factor in determining how much your loan will cost.

The good news about secured loans is that they tend to come with the lowest interest rates possible, though the range definitely does vary depending on the specific type of secured loan being considered.

Also, it’s important to point out that with some forms of secured loans, credit scores will go into determining the interest rates available to the borrower, with those borrowers that have great credit scores being offered loans with lower interest rates.
 

Secured Loans for People with Poor Credit

One of the most important factors of secured loans is that they’re typically the only form of lending available to people with poor credit.

This is especially true when the borrower wants to borrow a large amount of money, since lenders are highly unlikely to provide many thousands of dollars to borrowers with poor credit scores.

The beauty of secured loans is that they allow a borrower who has had financial problems in the past gain access to a large loan, since the collateral they offer the lender to secure the loan protects the lender from the potential that this borrower will default.

If you have bad credit, but need to borrow a lot of money, then you will absolutely want to forget about unsecured loans, and look into your options for secured loans.
 

Different Types of Secured Loans

Secured loans come in many different varieties, including mortgages, home equity lines of credit, car loans, boat loans, title loans, equity loans and even pawn loans.

With so many options on the table, it’s important for you to figure out which one would work best for your unique financial situation.

The sections below will dive into details about each type of secured loan, helping you to determine which type of secured loan will be best for you.
 

Mortgages

Mortgages are one of the most common forms of secured loans, and one that virtually everyone understands.

Mortgages are a form of secured loan offered by banks or other financial institutions which are provided for the sole purpose of purchasing a home or piece of property.

With a mortgage, the home you purchase is used as collateral for the loan. In most cases, lenders will allow you to borrow up to about 80-90% of the price of the home, but will require you to pay them at least 10-20% of the home’s value up front.

Mortgages are one of the cheapest ways to borrow money for the long-term, because houses are such valuable assets that lenders feel confident in their ability to recoup any money sent to borrowers, either by getting paid back via monthly payments, or by taking possession of the house when the borrower defaults.

If a borrower should default on their mortgage, the lender enters a process known as “foreclosure”, which allows them to seize the home and sell it to someone else.
 

Home Equity Lines of Credit

A Home Equity Line of Credit (HELOC) allows people to borrow money on an as-needed basis, using the equity they’ve built up in their homes as collateral for the loan.

To find out how much equity you have in a possession, you’ll need to subtract the amount you owe on that possession from its total value.

For example, if you owned a home worth $1,000,000, but you still owed $900,000 on that home, then you would only have $100,000 in equity built up in it.

Someone who owned a home worth $500,000, but who only owed $100,000 on that home would have built up an equity value of $400,000.

A home equity line of credit is typically used for home remodeling expenses, but can also be used for other major expenses, such as purchasing a new car, consolidating credit card debts, paying for college education costs, etc. If you are considering a home equity line of credit, you will need to compare loan plans offered by traditional banks, credit unions, and mortgage companies to make sure that you get the best deal possible.

Keep in mind that home equity lines of credit also take into account your credit score, debt to income ratio, current salary, and other factors, and that they aren’t simply limited to the equity value of your home.

Also, don’t forget that this form of secured loan requires you to use your home as collateral, which means that defaulting on your loan could mean losing your house. Tread cautiously.
 

Auto Loans

When it comes time to purchase a new car, most people don’t have enough money to buy their new vehicle outright. That may not be a problem though, because as long as you’ve got good credit and a stable income, you should be able to acquire an auto loan.

Auto loans are available to help people come up with the cash to get a new car, and they allow you to use the equity in your existing car, house, and your new car (once you’ve made a down payment on the vehicle and built up some equity), to secure the loan.

Like mortgages and home lines of credit, auto loans take your credit score into account, but they also evaluate your debt to income ratio, annual income and other factors to help determine how much money you’ll be able to borrow, as well as how much borrowing will cost you.

And, just like the other forms of secured personal loans, failing to make your payments on time will risk having your new car repossessed by your lender. When it comes to taking out a secured loan, the most important thing to consider is making sure that you’ll be able to keep up with those monthly payments.
 

Car Title Loans

One of the best forms of secured loans available to people with poor credit is the car title loan (also referred to as a “pink slip loan”).

Car title loans are a form of short-term loan that uses the equity value you’ve built up in your car as the collateral for a loan.

Car title loans are one of the best ways to raise money quickly, because they’re relatively easy to qualify for, requiring significantly less paperwork than mortgages, auto loans and other forms of financing.

But that’s not all, because auto title loans come with some very important advantages which we think are worth pointing out, including:

  • Car title loans are fast, often allowing you to raise the money you want in mere minutes
  • Car title loans are relatively easy to qualify for, and are sometimes even available to people with terrible credit scores
  • Car title loans can raise lots of money, since they’re based on the equity value of your vehicle (the more your vehicle is worth, the more you can borrow)
  • Car title loans don’t require you to sacrifice the use of your vehicle while you’re paying off the loan (unlike some other forms of lending, like auto pawning)
  • Car title loans can be used to pay for any costs, from placing a down payment on a new property, to purchasing a new car, to taking a vacation or even buying Christmas present

At the end of the day, car title loans are one of the fastest, easiest and most convenient ways to borrow money, and they’re certainly one of the best forms of secured loans for people with poor credit.

The only downsides to car title loans are that they require you to have some equity in your vehicle (so they’re typically only available to people who’ve either totally or nearly paid off their cars), and that they can lead to repossession if you default on your loan.

As long as you’ve got a few thousand dollars of equity in your car, and you don’t borrow more money than you can afford to pay back, car title loans are your best bet for raising lots of money quickly.
 

Which Type of Secured Loan is Right for Me?

We’ve already established the many benefits of secured loans; now you just have to decide which form will work best for you.

If you’re like the typical American, you have built up some equity value in your car, and you could easily convert that equity into cash via a car title loan.

Even if your credit score isn’t perfect, you may still be able to get an excellent vehicle title loan from City Loan Long Beach!

 

Find a City Loan Near You

If you're looking to get a loan from the best in the industry, City Loan Long Beach is your best bet! Our coverage area spans several states including: South Carolina, Missouri, California,  New MexicoArizonaUtah, , and Texas, and we’re ready to help you today! 

Are you in the Long Bech Area? City Loan has you covered. Our main office is located at:

Address: 
3431 Cherry Ave,
Long Beach, CA 90807


Whether you’ve got perfect credit, or terrible credit, we may still be able to help you raise the money you want quickly.In fact, sometimes we’re even been able to lend money to people with major credit problems, even after other lenders have already turned them down!

To get thousands of dollars in mere minutes, fill out our easy online application form or give us a call at 1-888-238-9085