Secured Loans are loans in which the borrower pledges as asset, for e g. a car or any form of property as collateral for the loan. The loan then becomes a secured debt owed to the one who gives the loan also known as the creditor. The debt given by the creditor is therefore secured against the collateral and if in any case the borrower is a defaulter and is not able to pay back the loan the creditor takes the full possession of the asset that was used as collateral. The creditor even has the right to sell the asset to regain the amount that was lent to the borrower
As seen from the perspective of the lender, Secured loans are a kind of debt in which the creditor has been given a number of rights to a specific property. Unsecured loans are just the opposite wherein there is no connection to any specific property and the creditor may regain or satisfy the debt against the borrower rather than just the collateral.
There are usually two main purposes of Secured Loans. Firstly, by extending the loan through securing the debt the lender is relieved of the financial risks involved in giving the loan, because it allows the creditor to regain the given loan by taking the property kept as collateral in case the debt is not repaid.
The second significant purpose of Secured Loans is that it allows the borrower to receive loans on more favorable terms as compared to unsecured loans, which would not be extended at all. It may also happen that in a secured debt the creditor may offer attractive interest rates and repayment period. A very popular kind of Secured Loans that is available only at a bank or credit union is called Savings Secured Loan. It is essential for the borrower to have a savings account with the creditor for this kind of a loan. The collateral is certain amount of money from the account itself to secure the loan, which is equal to the pledged amount. The money is frozen in the account but continues to earn interest. As soon as the loan is repaid the frozen amount in the account is freed. This kind of a loan has advantages both for the lender and the borrower. If the borrower doesnt repay the collateral is already in the creditors possession so it lays low risk. On the other hand the creditor offers lower interest rates beneficial for the borrower. But the drawback of this kind of a loan is that it is limited to the available fund in the savings account. A no recourse loan is a kind of Secured Loan where the collateral is the only security or claim that the creditor has against the borrower and the former has no further recourse against the later for any kind of deficiency remaining after foreclosure against the property.
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