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The Most Common Secured Loans
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Uses for secured loans

There are several reasons a person might consider secured loans, but there are three that are more common than any of the others. When many people think of having to provide security for secured loans, they don't often think of borrowing money and providing collateral but of actually making a purchase for a specific purpose.

Buying a New Car with a Secured Loan

One of the most common secured loans is the car loan. In most cases, the buyer will purchase a car through the dealership and allow them to handle the financing. In some cases the buy has his own lender in mind and chooses to handle the financing himself. This option may prove cheaper for the buyer in some cases because there are some dealers that offer discounts for cash sales, and any time a buyer handles his own financing it is a cash sale.

This saves the dealer time and expense when he doesn't have to worry about calling different lenders to obtain financing for the buyer. That doesn't mean all dealers do this, but if you conduct some research, you are likely to find some that do. Even if they don't specifically state they have discounts for cash sales, you can certainly bring it up when you are negotiating the price.

Purchase of Real Estate

The second most common type of secured loan is the mortgage loan for the purchase of real estate. In the past this was the only reason people would borrow money. During the turn of the 20th century and into the 30s and 40s if you couldn't afford to pay cash for an item, you didn't buy it, and that included cars and even household goods. Many people lost their homes during the depression and were fearful of a repeat appearance, so they refused to finance anything but a home and even then struggled to pay it off as soon as possible to protect that precious asset. Today things have changed, but the home mortgage is still one of the most common loans that one considers whey thinking of a loan back by collateral.

Home Improvements or Renovations

The third category for secured loans is home improvements and renovations. Although in some rare cases lenders may approve a home improvement loan without collateral, in most cases these loans are secured by the equity in the borrower's home. The amount of money a lender will lend for home improvements or renovations depends on the equity in the home and in many cases the borrower is only allowed to borrow a percentage of the total equity in the home, but it depends on the lender and the strength of the borrower's credit.

Credit history and financial stability are the basis behind any loan, secured or not. Although some lenders advertise they will approve an equity loan even for those with bad credit and no employment, you will most likely find the interest rate on these loans to be exorbitant to cover any potential loss the lender may incur.

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Understanding secured loans

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