Secured Loan Application

Secured loans are loans where the borrower vows specific property/ies acknowledged as collateral to the person he/she is borrowing money from known as the creditor.  Collateral ensures creditors interest to get their money back in the event borrowers default on their payment.  The collateral being pledged also usually have the similar value as the loan being extended.  The higher the amount of the loan, the value of what the collateral should be more or less equivalent to the loan settled.  Secured loans is the most favored and most common loaning process amongst creditors given that it assures them of a definite payment.

The limited power over a pledged property provides a sense of indemnity for creditors.  The confidence given to creditors by collaterals also bring forth the regulations in setting loan limits and interest rates.

To the benefit of the borrower, a secured loan allows him to acquire a flexible, extended and relaxed term.  He may also be permissible to get a different loan while still under contract to the current loan.  For the creditor, he would still get his money back in case the borrower fails to pay a certain extent of the loan.

In the financial world, every benefit comes with a risk.  In the event of default of payment, the borrower’s pledged asset may shrink in value and the creditor may have to settle for a lower value by the time he has to sell it.  There is even more risk for the borrower since he/she could lose his/her home and property.

An example of a common secured loan is a mortgage loan.  Benefits and risks go both ways for the creditor and borrower.  The borrower pledges the same home or property he’ll be living in to the same loan he is paying it for.  The home of the borrower may be foreclosed if the borrower fails to pay an accumulated amount for a certain period.  For the lender of the loan, his insurance is the pledged real property but there is no certainty when he will get the full amount he lent to the borrower back.  Whether the borrower will be able to sustain payments or if foreclosure is bound to occur, there’s no certainty if or when the foreclosed home will be sold at the same value.

What’s more, there should be evidence that the borrower’s asset being collateraled is in his name.  To make sure that the borrower is qualified and sincere enough to be granted the loan, creditors make background checks or “credit check.”   If the credit check passed, a go signal is given and the secured loan is arranged in the form of a written contract.

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