What Is Secured Loan - Meaning & Definition
Get the lowdown on secured loans. Our expert guide covers everything you need to know about this type of borrowing, including its meaning and definition.
During financial emergencies, one can borrow money from banks or can pay it off by using personal savings. But personal savings are post-retirement funds and investing them in mutual funds or stock markets can yield high returns. So, it is not good to deplete them. As a substitute, a loan can be a healthier option.
Borrowing can be a costlier deal but if planned properly can prove to be useful in the long run.
Typically, all loans come with interest charges that the borrower must return to the bank along with the principal amount within a fixed time period. The interest rate on personal loans is usually high, but if secured with a collateral it can be easy on the pocket.
What Is A Secured Loan?
A secured loan is a loan that requires some collateral as a condition for borrowing. The financial institution will hold on to the ownership deed of the collateral until the loan is fully cleared. For these loans the pledged collateral can be gold, car, property, equity, etc.
But that does not mean that secured loans can only be taken against physical assets. Many banks and online lenders now offer secured loans against financial assets like stocks, mutual funds and bonds. Even insurance policies can be deposited at banks to get secured loans. A number of banks also allow its customers to use their savings accounts or fixed deposits as a collateral.
These secured loans differ to some extent from home loans or vehicle loans in which the loan amount is secured by the respective asset. Share-secured or savings-secured loans are secured by the amount saved in the certificate of deposit (CD) account or savings account.
Usually, borrowers get secured loans from banks to lower their interest rate and extend the loan tenure. Lenders too, decide the loan amount based on the value of the security. However, one must try to make timely payments of the EMIs. If the borrower defaults on the loan, the bank will liquidate the asset and settle the debt. Still if the pending loan amount is more than the value of the security, the borrower will have to pay the extra money.
Conclusion
Secured loans can be taken for both personal and business purposes. All one needs is some form of security that can be used to back-up the loan.
If you are looking for secured loans, then IIFL Finance is the right place for you. IIFL Finance caters to all types of loan products, whether secured or unsecured. All loans are available at competitive interest rates. However, if you need a loan in minimum possible time apply online for instant disbursal.
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