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Video Transcript

Secured loans are popular finance products. Borrowers should understand what a secured loan is and how they work prior to applying for one.

Secured loans are usually offered by banks or other finance businesses. So a lender can provide a borrower with a larger amount of money or a more competitive interest rate, they secure the loan against a high value asset that belongs to the borrower. Secured loans are most commonly secured against the borrowers home, however other high value assets, such as a car, may be used as collateral. Secured loans are usually repayable over longer periods than unsecured loans, and they are available with fixed and variable interest rates.

An example of a secured loan would be to borrow $50,000 at a fixed interest rate, with the total loan cost repayable over 20 years. As the loan is secured, failing to make the necessary repayments could lead to a borrower’s home, or whatever asset they used as collateral, being seized so it can be sold to repay the balance of the loan.

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