Secured loans are a powerful borrowing tool based on your assets’ value. Secured loans can be affordable, more accessible than other loans, and versatile. You can use them for personal debt consolidation, home improvements, or large purchases, or use them to scale and grow your business.
It is critical to understand how these loans work, including how to obtain them, their benefits, and their risks. If, after all of that, you find that a secured loan is the right choice for your needs, HFS FCU can help you obtain the right loan for your situation. We’ve created a guide to help you explore a secured loan that offers the insights you need. Feel free to contact our team anytime for more information and resources.
What is a Secured Loan?
The secured loan definition is simple. Secured loans are funds lent based on that asset’s value. The key component of a secured loan is collateral. That’s the value of your asset being used to secure the loan. If, for any reason, you stop making payments on the loan or do not meet the contractual requirements of the loan, the lender can seize the asset to help repay the debt.
A secured loan can be highly beneficial because it offers a lower interest rate than unsecured loans. Both brick-and-mortar and online lenders have less risk when taking on these loans because of the collateral that backs up their value. There’s less risk to the lender, which translates into lower costs for borrowers.
HFS FCU is a trusted source for secured loans. We offer competitive rates and personalized service. Let our team offer insight and guidance if you wonder what a secure loan can do for you.
How Does a Secured Loan Work?
Now that you know the meaning of a secured loan, consider how it works. Here is an example.
You inherit a 1950s collector’s car. There is no loan on that car. It’s in pristine condition. You would like to borrow money to make some upgrades to your home. Your car could become a piece of valuable collateral for you. Here is how the process may work:
- Apply for the loan. You will need to apply directly to the lender for the loan. You’ll need to provide information about your assets, the reason for the loan, and your identification. You will also need to verify your income and other expenses.
- Get the asset appraised. The lender will then request an appraisal for the car’s value from a neutral third party. They will look to an industry expert to help with this process. That verifies the value.
- You work out the loan terms. You’ll work with your lender to set the loan terms, including how much you’ll borrow, the interest rate, the monthly payment, and other terms. Then, you’ll sign the documentation.
- You get the funds. You can use the funds as you need to, which often means you’ll receive a lump sum payment from the lender. This lump sum can be used for various purposes, giving you the necessary flexibility.
- Repayment. You start repaying the loan within months. The loan no longer secures your vehicle once you pay off the entire balance.
The appraised value of an asset plays a crucial role in determining secured loans. This value is the cornerstone of other secured loans, such as car loans for new or used vehicles, personal, home equity, and mortgage loans.
HFS FCU’s streamlined process and member support from application through repayment make borrowing this way easy to do. We can answer any questions and help you determine what loan terms may fit your needs. What does a secured loan mean to you? Could it mean lowering debt, paying for a home upgrade, or meeting another need? Contact us now to find out.
Types of Secured Loans
Secured loans are used every day in numerous ways. While they all follow the same secured loan example of being based on the value of an asset, the type of asset used can change significantly. The following are some of the most common types of secured loans used today:
- Mortgages: Mortgages are secured loans used to purchase real estate. They can include first and second loans based on the property’s current value. Most often, mortgages allow borrowers to obtain up to 80% (or more) of the current market value of the real estate.
- Auto loans: You can obtain a secured loan to help you pay for purchasing a new or used car. Your lender will verify that the value of your car is worth at least as much as the purchase price or amount you are borrowing.
- Secured credit cards: A secured credit card is a unique form of loan. It’s like a regular credit card but with a twist. To get a secured credit card, you deposit money into the Secured Savings, which becomes the value that backs up the loan. For instance, if you deposit $1,000 on the secured loan, you can borrow and repay up to that $1,000 limit over time.
Remember, a personal line of credit can be secured or unsecured. In some situations, personal loans without security can be easier to obtain if you do not have a valuable asset, a good credit score, a good credit history, and other creditworthiness.
If you’re ready to find out how a secured personal loan could work, contact HFS FCU to learn more. We offer a range of loan types to fit most needs and budgets. We tailor each loan to meet the unique needs of our clients, no matter what those needs are.
Secured vs. Unsecured Loans
You may wonder what options exist when deciding between secured and unsecured loans. A valuable asset backs secured loans. The opposite is an unsecured loan, which does not offer the lender that type of financial security.
An unsecured loan requires no collateral. That means the value of the loan is dependent on your credit qualifications. In these loans, if you default or stop making payments on time, the lender will have less ability to pursue your assets to repay the debt. Consider the pros and cons of unsecured loans:
- Pro: Unsecured loans do not put your assets at risk if nonpayment occurs.
- Pro: With less restriction, you can use the funds for anything you need and want.
- Con: A less-than-perfect credit report may make it more difficult to qualify.
- Con: Interest rates tend to be higher on unsecured loans because the lender is exposed to more risk when offering these loans.
As noted in our secured loan description, these loans are “secured” by the value of some asset. For lenders, there is far more security and less risk, which benefits both the lender and the borrower. Consider some of the pros and cons of secured loans:
- Pro: Secured personal loans have a much lower interest rate, substantially lowering the cost of borrowing money for borrowers.
- Pro: The increased security associated with secured loans makes it notably easier to secure a loan from a lender, even if your credit score is low.
- Con: Assets must be available to obtain a secured loan.
- Con: Some secured loans restrict how the funds are used. For example, your lender may require you to pay off your debt with the loan.
Understanding the difference between secured and unsecured loans is critical. Both offer benefits to borrowers based on the specific needs of that borrower. HFS FCU provides consultations for our members to help them determine which loan type is best for their specific needs. Reach out to us now for more insight.
What Can Be Used as Collateral?
The core component of secured loans is having collateral, or something worth money to others, to secure the loan. A lender like HFS FCU may accept various types of collateral. Some examples include:
- Real estate
- Cars
- Savings accounts
In all situations, lenders will require that the value of the collateral be assessed by a licensed, third-party, and non-affiliated organization. They will not just take a member’s word for it but work to determine the actual value in the current market.
HFS FCU offers flexible collateral options and expert advice to help members make informed decisions. If you’re not sure, reach out to us for more insight.
Pros and Cons of Secured Loans
Let’s break down the pros and cons of secured loans a bit more.
The benefits of secured loans include:
- Lower interest rates
- Easier to qualify if you have assets
- More borrowing opportunities since not just your income is used
- You can use them to build your credit with on-time payments over time
The disadvantages of secured loans include:
- Assets will be secured as collateral.
- There is a potential loss of the asset if you fail to make payment on time.
Before deciding on secured loans, speak to an HFS FCU loan officer. You need to be fully aware of the risks that come from having these loans. Our HFS FCU loan officers can help you explore how these loans may work in your situation.
How to Apply for a Secured Loan
Applying for a secured loan is a straightforward process. Here’s what you can expect when you work with our team.
- You must complete a loan application, which you can do in person or online. You must present your driver’s license or other identification.
- Provide the necessary. You may also need to verify your income and other debt obligations.
- Third-party valuation may be required to clarify the asset’s value.
- Get approval. Determining if you qualify and how much you can borrow takes a little time.
What Happens if You Default on a Secured Loan?
It is essential to understand the risk of defaulting on a secured loan. It could mean you lose your collateral, meaning the lender seizes the asset you built your loan on based on its value, such as your home or car. Also, note that there is likely to be a negative impact on your credit score because you need to follow through with the agreed terms of the loan. If any, the borrower will also be responsible for any differences the sale of the asset produces.
HFS FCU is committed to working with our members to find solutions that prevent default. If you find yourself unable to make your payment, please contact us to discuss your options.
Why Choose HFS FCU for Your Secured Loan?
HFS FCU is a preferred lender for secured loans. We offer competitive rates, personal service, and a community-focused approach to meeting our members’ needs. Apply for a secured loan now or schedule an appointment with an HFS FCU loan officer to learn more. Allow our team at HFS FCU to guide you.
Frequently Asked Questions (FAQ)
What types of collateral can be used for a secured loan?
Real estate, vehicles, and savings accounts are some of the most common.
How does the interest rate on a secured loan compare to an unsecured loan?
Interest rates on secured loans tend to be significantly lower than on unsecured loans. Factors such as the Credit Union’s lending rate and credit score affect this value.
What happens if I can’t repay my secured loan?
If you cannot repay your secured loan, contact us immediately and allow our team to go over options.
Can I use a secured loan to improve my credit score?
You can build up your credit score by paying consistently with your secured loan. You can also free up some financial relief using a secured loan to pay down credit card debt.
How do I apply for a secured loan with HFS FCU?
You may apply online or schedule an appointment with a loan officer.
Are there any fees associated with taking out a secured loan?
Depending on the type of loan, you may be charged fees. We will provide you with a full breakdown of the fees expected when you apply with us.
