Advance America: 3 Types of Secured Loans and How They Work
LOS ANGELES, June 10, 2022 (Newswire.com) - Secured loans require borrowers to put down a valuable item called collateral. The lender can take possession of and sell the collateral to recover losses if the borrower can't pay their loan back. There are several types of secured loans, each designed for a distinct purpose. As a result, different types of secured loans may work better for certain borrowers. This article will dive into three common types of secured loans and what they can be used for.
Title loans let car owners use their titles as collateral to get funds. When getting a title loan, the lender will first appraise the borrower's vehicle. Then, they'll offer the borrower a loan worth 25% to 50% of the car's value. If the borrower accepts the loan terms, they can leave that same day with the loan. Plus, they can continue driving their vehicle while paying back the loan.
Homes are some of the most expensive assets people can buy. Mortgages help homebuyers afford them by using their home as collateral. These loans come with a fixed or adjustable interest rate. For instance, a 30-year fixed-rate loan is one of the most common mortgage types.
With mortgages, borrowers don't receive the funds right away. They must first get prequalified for a mortgage, then make a down payment on their home and get to the closing process. Only then does the lender send the funds to the home seller. Mortgage borrowers can then begin repaying their loans every month.
Pawn shop loans
Pawn shop loans let borrowers use nearly any valuable item they own as collateral on a loan from a pawn shop. These require no credit checks, and pawnbrokers don't often verify the borrower's income, either. The pawnbroker will first appraise the borrower's item, then offer the borrower a loan amount and set of terms. The borrower can walk out with their loan that same day. Borrowers usually must pay back their loans plus interest within 30 days, or the pawn shop will keep the collateral.
How to choose the right secured loan
Each loan suits a different purpose. Title loans may work well for borrowers who own a vehicle outright because these loans offer same-day funding, and the borrower can continue driving their vehicle while they repay the loan.
Mortgages are a great option for homebuyers. In fact, they're the only type of loan large enough to afford a home. And any other borrowers who need a quick loan without a specific type of collateral might want to consider a pawn loan. These don't require credit or income checks, and borrowers can use nearly any valuable item. Ultimately, borrowers should consider the purpose of their loan and what they can use as collateral to pick the right option for their unique situation.
Notice: Information provided in this article is for information purposes only. Consult your financial advisor about your financial circumstances.
Source: Advance America