About Personal Secured Bank Loans

Personal secured bank loans are loans that individual borrowers take out for personal use and offer something to the bank as collateral if the borrower fails to pay as agreed. The amount the bank will be willing to lend to the borrower as well as the interest rate offered, will depend on the value of the collateral offered, the borrowers credit score, any current outstanding debt and the borrower's ability to repay the loan.

Types

Personal secured bank loans are available with fixed interest rates and variable interest rates. The monthly payments will remain the same for the length of the loan with a fixed interest rate. Should the borrower default, the bank may take the collateral, which secured the loan and resell it. Variable interest rate personal loans, such as some home equity lines will have payments that fluctuate periodically, depending on the prime-lending rate. The initial stated interest rate on variable rate loans is usually attractive to borrowers because it starts out less then the available fixed interest rates.

Size

Secured personal bank loans may be of any size, usually tied to a percentage of the value of the borrower's collateral. The months offered might be limited by the expected useful life of the collateral. For example, car loans usually will not exceed six years, but banks routinely offer home mortgages for 30 years. Banks also have slightly different criteria for jumbo loans. The definition of jumbo loans varies among banks but ranges begin from 240,000 to 400,000.

Time Frame

The period of a personal bank loan is determined by the borrowers' preference, the dollar amount borrowed and how long the collateral will retain its value. Typically, when an individual buys a new car for example, the bank offers a fixed rate, for a fixed period, usually between 12 and 60 months. Home mortgages are offered with 5-year balloon, 10-year, 15-year, 20-year, or 30-year repayment periods. With a 5-year balloon, payments are the same for five years, and then the borrower must pay the balance in full.

Warning

Secured personal bank loans are not deductible on federal income tax currently unless your home is the collateral. Other stipulations may also apply if the borrower owns more than one home. Defaulting, not making payments, on a secured loan will result in the loss of the item that secured the loan, the collateral.

Considerations

Interest rates on personal secured loans are much lower than credit card interest rates and can be paid in full in a predetermined number of months. A borrower with an asset to offer as collateral may save a significant amount by refinancing the asset to pay off credit cards. Consider canceling credit cards that you refinanced to avoid charging the balances up again.