Examples of secured loans
There are different types of secured loans that use a variety of assets. Learn more about these types of loans by reading some of the secured loan options below.
Residential collateral mortgage
A mortgage is slightly different from a standard secured loan. In this case, the real estate is used as collateral for the loan, even if the borrower does not yet own it.
With a mortgage, you can suffer foreclosure. If your lender made a good faith attempt to contact you, attorneys may file a first legal case, which triggers a lawsuit or mortgage default, depending on your state.
If you are still not looking for options to avoid losing your home to foreclosure, your lender can either (depending on your state laws) sue through the court system (in a court foreclosure) or sell the house at auction without involving a court (in a non-judicial foreclosure). You will then be kicked out of the house.
A second mortgage is similar to a main mortgage on a house, except that it is an additional mortgage on a house. Just like your first mortgage, you also use your home as collateral for the second mortgage.
However, you are tapping into the equity in your home to access a second mortgage. Equity is the difference between the value of your home and what you owe on it. Depending on your qualifications, you may be able to access a large portion of the equity in your home.
For instance, home equity loans are a type of second mortgage where your lender pays you a lump sum. Home equity loans, however, are riskier for the lender, as the first mortgage is paid in the event of default and the second mortgage is paid after. Still, home equity loans are secured, which may mean you’ll get a lower interest rate.
Auto loans use the purchased vehicle as collateral. If you don’t make your car loan payments, the lender may repossess the vehicle to pay some or all of the debt you owe.
Loan against securities
You can also get a loan by pledging stocks like stocks and bonds as collateral. This securities loan can also be called a portfolio loan. In this case, you can use certain personal assets as collateral for a loan, such as:
- Mutual fund
- Exchange Traded Funds (ETFs)
- Insurance conditions
- Certificates of Deposit (CDs)
- Personal savings accounts
- Retirement accounts
You can use securities as collateral for many things, such as buying real estate, investing in a business, or buying a vehicle. With a securities loan, the value of the asset used as collateral will affect the amount of the loan. Also, if the securities you have pledged lose value, your lender may ask you to find the money to restore your balance.
Business loans use assets such as machinery, equipment, inventory, or buildings as collateral for the loan. Collateral in securities can also be used, such as stocks, bonds, mutual funds, etc. The lender can also use the future income of the business as collateral.
It is also possible to obtain an unsecured business loan, but these usually come with higher interest rates and tougher requirements for borrowers.