Have you ever tried to have a business conversation with a loan professional that spoke to you in such a way that the fancy terminology made you feel ignorant? Did you have any idea what they were talking about? If you're looking for a basic summary of secured loans, you've come to the right place. After reading through this single page, you will possess enough information to further your education about secured loans, as they are uncovered and explained for the "non-financial professional" person to understand.
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First and foremost is the term "secured loan". The word "secure" means "free from risk". Security in this sense is in regards to the lender. A secured loan is money granted with something (like a house, boat, car) held as collateral. Simply put, if you don't pay your loan as arranged, the financial institution that gave you the loan has the right to come and take your property as payment.
There are a few other differences between secured and unsecured loans. For example, the amount of interest paid on a secured loan is significantly lower than that of an unsecured loan. The reasoning behind this goes back to the original definition of secure and the amount of risk involved. A bank will charge you less money if they are guaranteed a "win-win" situation, like with a secured loan.
Of course, the amount of money borrowed will affect the payment amount. Traditional, secured loans range from £3,000 to £50,000, but have been known to be as high as £250,000 from certain lenders. A predesignated loan payment will be paid for a prearranged amount of time. Both the borrower and lender should be aware of these terms before any legally binding agreement is signed.
There are several laws in place to protect both the borrower and lender in the secured loan industry. If the borrower is purchasing a home with a secured loan (often referred to as a mortgage), the loan is subject to the Consumer Credit Act of 1974. Within this act are the strict guidelines as to the act of lending money for loans up to £25,000. Any loan for a greater amount is not regulated. Before a regulated secured loan is written, a legally binding credit agreement for the terms of your individual loan program must be signed by all involved parties. A consideration period of at least 7 days must be granted to the borrower by the lender for you to change your mind and rescind on the loan.
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