Types
A secured loan has advantages for both lenders and borrowers. The loan is based on collateral limiting the exposure of the bank, and that safety allows banks to offer loans with lower interest rates. Some banks or other lending individuals or institutions will accept a wide variety of assets as collateral, while others offer only the more standard secured loans.
Home:
A home is often the largest investment an individual or couple makes. The financial arrangement, or mortgage, designed to purchase the home are secured by the home itself allowing lenders to offer very competitive interest rates. There are a wide range of mortgage options, but mortgages are all similar in that they use the actual property you're purchasing as collateral.
Once you're in possession of your home and you begin paying down the mortgage and the value of the property increases, your equity in the property increases. A home equity loan allows you to borrow against this equity effectively creating a second mortgage or lien on the home. The funds you've borrowed are secured by the home meaning a default on your original mortgage or the home equity loan gives the bank the option to foreclose in order to recoup their loss.
Transportation:
The most popular secured loan for transportation purposes is a car loan. Car loans are arranged with the understanding the car itself will be repossessed should you default on payments. This allows interest rates to be low, but they may still vary based on credit and market conditions.
Other transportations items such as motorcycles, boats, recreational vehicles and heavy duty commercial vehicles can be purchased using a secured loan as well. As these loans are less common, interest rates may reflect some hesitation on the part of lenders, but arranging financing for a motorcycle though a secured loan will almost always offer a rate far less than a personal loan or line of credit.
Other:
There are many other loans which can be secured with a form of collateral. One popular loan option for those with financial assets is a savings secured loan. This loan option uses a savings account, CDs or other investment as collateral. The asset is frozen by the bank, but the balance continues to accrue interest over time. When the loan is paid back in full, the hold is removed on the savings instrument and you benefit from the interest that has generated over time.
Other collateral options for a secured loan options include any physical asset you're purchasing or an asset you already own and can convince a lending institution to consider as collateral. Furniture can often be purchased using a secured loan as can jewelry. If you have jewelry or other valuables, there may be an institution willing to use those items as collateral for a loan for any other purpose. Many times, only a conversation with your banker or loan officer will offer you the full range of secured loan options.
