Although the United States economy is in something of a rough patch at present, banks and lending agencies are always on the lookout for new customers who can support repayment processes, even if their credit is less than stellar. Indeed, the vast majority of loans given by banks are to Americans with below average credit scores through a process known as a credit secured loan. Credit secured loans do not depend on personal financial history as a means of setting interest, but rather utilize a collateral system to ensure that financial assets will be returned regardless of the borrower’s financial capability. The difference between a credit secured loan and an unsecured loan is that of the collateral; too little value and a bank will likely not tender the loan, so ensure that you have the financial assets, liquid or otherwise, before attempting to borrow the money.
A secured loan guarantees the repayment of the loan, so that before entering into the legal and financial agreement; there can be no doubts from either party about the bottom line. This bottom line is the issue of collateral, which must be given up front in order for the loan to be tendered. The most common loans are less than five thousand dollars, so the usual forms of collateral are automobiles, jewelry, or high-end electronics, such as computers or plasma screen televisions. As most cars, trucks, and some motorcycles have a value of at least five thousand dollars for the first ten years of their lives, banks tend to prefer holding automobiles as forms of collateral. This collateral is not collected by banks up front, unless this is part of the loan agreement, but must be held by the consumer and cannot be sold or otherwise modified for the duration of the secured loan.
If repayment is not issued within the expiration date set by the bank or lenders, the creditors have the unconditional right to seize the collateral asset as a means of collecting on the debt. Usually this means that the debt is canceled, though in some rare cases the banks find that the value of the collateral is not as high as previously indicated, and they may take action to further collect assets for repayment. This is most often the case when legal action is taken by one side or another with credit secured loans; the majority of lawsuits occur when one party rejects the others’ claim of value for the collateral.
Secured loans are generally designed for the poor in mind, as they almost never have the credit required for an unsecured loan but have some form of capital, which can be used for agreement on repayment. In addition, the security deposit required for many loans — used as an incentive to ensure timely repayment, as the security deposit may be a considerable percentage of the loan — can be part of the collateral, so that no money down is necessary to sign off on a loan. In addition, the banks may set lower interest rates on credit secured loans compared to unsecured loans, as they do not need to risk their own finances.
Real estate is often a form of collateral, but the process of putting up your house against a loan is called foreclosure. This occurs most often in larger business loans, as even a relatively cheap house can cost fifty thousand dollars. If the loan cannot be repaid, the house is turned over to the bank, who gives the difference of the property’s value (if any), to the previous owners. This is one of the leading causes of homelessness in the United States, as banks now control more American home properties than at any time in US history.