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What Is a Secured Loan?

A secured loan is a kind of loan wherein the borrower is required to put up collateral. The collateral can come in various forms. This can be a piece of property, a car, or any other asset. When an asset is used as collateral, the lender will be given the ownership documents for the asset until the loan is fully paid off. In the event that the borrower is unable to pay off the loan, the ownership of asset put up as collateral will be turned over to the lender.

Secured loans are most often used for huge amounts of money. This is due to the fact that not many lenders - friends or otherwise - will be willing to part with a lot of money without any guarantee that they will be paid back. If you think about it, a person who puts up his home or his car against a loan has much more incentive to pay back the full amount.

Generally, anyone who has something to put up as security for a loan can get approved. However, many factors do come into play. Banks and other lending institutions may not automatically approve a secured loan just because collateral is available. Credit histories, credit scores, income, outstanding debt, and the like will also be taken into consideration.

Money obtained from a secured loan can be used for practically any purpose, as long it is legal. One may use this money to make purchases - either brand new or used, it does not matter.

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