- Creditors allow borrowers with a history of high debt or delinquency to obtain credit by securing the debt. This is done to eliminate or minimize the financial risks that could befall the lender if the debt is not properly repaid. Secured loans are a more attractive alternative to high interest unsecured loans that require additional fees and may be more difficult to obtain. Most secured loans offer favorable terms and repayment periods.
- Financial institutions offer four types of secured loans including mortgage loans, non-recourse loans, foreclosure and repossession. The last two may surprise many readers as foreclosures and repossessions are not generally considered loan types. Because all secured loans require some form of collateral, a mortgage loan stipulates that property will function as collateral for the mortgage. If the mortgage is not repaid, the applicant will lose the property. Non-recourse loans are secured loans that stipulate that only the collateral will be available for claim if the applicant defaults on the loan. In this case, collateral can be a vehicle, expensive jewelry, property or stocks. A foreclosure is a secured loan that resells the property to recoup monies lost on an unpaid loan. A foreclosure is only applicable to a property. Repossession is similar to a foreclosure in that the claimant (e. g. the bank) can secure lost monies owed on a vehicle, for example. In the last two instances, the property and the vehicle are the collateral that allows both loan types to function as secured.
- Financial institutions like Chase Bank, Bank of America and Wachovia all offer secured loans to qualified applicants. Borrowers can visit a branch location or apply online. In submitting an application, the applicant permits the lending institution the right to view his credit report. This action is taken to determine eligibility as well as review past purchasing and debt patterns.
- There are several ways to create secured debt including a contractual agreement, statutory lien, or judgment lien. The creditor would need to authorize a contractual agreement with a Purchase Money Security Interest (PMSI) loan. Under this loan, the creditor would take a security interest in the items purchased with the loan money. These items can include vehicles, or expensive furniture.
- If a borrower defaults on a loan he will be subject to fees, penalty, as well as possible foreclosure or repossession. In some cases, the lending financial institution will allow the borrower to repay delinquent money owed on the loan. The sooner the delinquent amount is repaid, the greater the chance the borrower will have to ward off repossession and retain the collateral put forth to obtain the secured loan.
