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What is a secured loan?

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Quick Answer

A secured loan is a loan that is leveraged by some sort of collateral, according to Wells Fargo. For example, a personal loan might be secured by using a vehicle as collateral when applying for a loan; the lender places a lien on the vehicle until the loan is paid off and can seize the car and sell it should the borrower default on the loan.

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Full Answer

The benefit of leveraging personal assets to secure loans or lines of credit is that it increases the odds of approval of the loan while also allowing borrowers to enjoy a lower rate of interest. Less interest translates to lower payments, a faster repayment term and more affordable borrowing.

Homeowners can tap into the equity in their homes in order to secure a home equity loan or credit line. According to Wells Fargo, the value of a home equity loan or line of credit is usually around 80 percent of the current appraised value of the home, minus what the homeowner may owe on the home. This type of secured loan gives homeowners access to large lump sums of money for paying major expenses, including home improvements.

Wells Fargo notes that loans can also be secured by savings accounts or CDs. These types of loans are fairly easy to get and usually feature a fixed rate that is predictable with payments that are easy to budget.

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