A secured loan is one where the creditor has demanded an endorsement to guarantee the return of the money from the debtor.
That is, a loan with guarantee is given when the borrower ensures the repayment of the credit received. This, presented a particular asset or your own heritage.
The presentation of a guarantee reduces the risk for the lender, so that it will be more likely to recover the capital paid on credit.
If the guarantee is a good, it can be sold by the lender to convert it into money and, in this way, it will compensate the debt not previously paid.
On the part of the applicant, offering a guarantee helps him to be able to access credits that, otherwise, he might be denied (or he would be required to pay a high interest rate), since the lender would run a very high risk.
Types of secured loan
The main types of secured loan are:
Home equity loan
It is one where the borrower puts as collateral a real estate of his property. In this way, capital is obtained that can be used for studies, investments, or other uses.
If the repayment of the credit is not fulfilled, the creditor can take possession of the property to sell it and recover the capital given as a loan.
It should be noted that it is not necessary that the property placed as collateral has finished being paid. Remember that real estate loans are usually long-term, so people can take between 15 and 20 years to pay for a home, or even longer.
Loan with collateral
It is one that presents a movable asset as collateral.
This, usually, is a high value object, such as jewelry or works of art, which is pawned.
This type of loan is known as pledge or pledge credit.
Loan with personal guarantee
It is a credit in which the debtor puts his income generation and accumulated equity as collateral, as well as a guarantor. This is a third person who agrees to meet the debtor's obligations in the event of non-payment.
Another point to mention is that a loan has a real guarantee when a tangible asset, whether movable or immovable, is backed up. That is, a mortgage or pledge guarantee falls into this category.
Example of a secured loan
Let's see, to finish, an example of a secured loan.
Let's suppose that Matías requests a loan of 30,000 euros to make an investment.
The bank analyzes Matías' regular income, but they also require him to present a guarantee.
In this case, a property is put as backup, having to present the title of property of this, as well as its appraisal.
The above would be a case of the type of mortgage guarantee.