There are two types of loan – secured and unsecured. Most loans that people take out are unsecured loans. So what is the difference between a secured loan and an unsecured one? Put simply a secured loan means that if you fail to pay the loan then the lender has rights to seize your property in order to pay off the loan and any other associated costs. The most popular and well known type of secured loan is a mortgage. With a mortgage the loan company, usually a bank or building society takes possession of the title deeds of your house or home or other building or land as security for the loan.
Are car loans secured?
Generally speaking no – car loans are normally unsecured. Both the lender and the borrower get a potentially good deal from a mortgage or other secured loan. The advantage to the lender is that if you default on payments they have an almost 100% guarantee that they will get their money back. For this reason they offer comparably lower rates of interest on mortgage than compared with an unsecured loan. This in turn is of benefit to the borrower. If the borrower fully intends to pay off the loan then the risk to the borrower is very low and the benefits of a lower rate of interest are high.
However secured loans are not only secured on land or buildings they can also be secured on other items of high value such as cars. However loans secured on a person main residence is the main type of secured loan.
What type of car loan is best secured?
Secured loans are best for larger sums of money (for instance to buy a house) and for longer periods of time. They are not suitable for emergency loans, holidays, car repairs etc. In these types of circumstances, if a loan really is required an unsecured loan is going to be most suitable.