SECURED LOAN AGREEMENT
Whenever you want to make a major purchase, be it a car, boat or home, you are most likely going to get a loan. Whether you get one from a bank, a mortgage company or your Uncle Tommy, the loan giver will probably want to make sure their interests are protected if you can’t pay. As well as charging you interest, they are most likely going to ask you to sign a Secured Loan Agreement. If you are applying for a loan or are considering giving one, you need to know what a secured loan is and how you can use it.
- WHAT IS A SECURED LOAN? A secured loan is one where the loan giver (the creditor) agrees to give the person receiving funds (the guarantor), and in return receives a right in other property. This right to other property could include a home, the equity already in a home or a car. When you enter a secured loan, you are telling the creditor that you will pay according to the loan agreement. If you do not, the creditor can take the property (commonly called collateral) you have used to secure the loan. This is most commonly found in car loans, home mortgages, etc. If you do not pay as agreed, the creditor has the right to repossess the car or foreclose on the home.
- WHAT IS THE DIFFERENCE BETWEEN A SECURED LOAN AND AN UNSECURED LOAN? A secured loan is one where collateral is supplied by the loan recipient. In the case the recipient is not able to pay and goes into default, the collateral will be kept by the loan grantor to satisfy the loan. A non-secured loan is where the grantor allows the loan recipient the funds without taking collateral. The most common unsecured loan is a credit card. When you use a credit card, you are not asked to provide capital, you just promise to repay the funds. Secured loans are different in that they need some collateral or other security—other than just a promise—before you can receive the loan.
- WHAT INCLUSIONS MUST IN THE SECURED LOAN AGREEMENT? Secured Loan Agreements need to have some specific information in them. As well as the amount loaned, the interest and the manner of payments, Secured Loan Agreements should make it clear duties the grantor and the creditor have to each other. How are defaults handled? What happens in the event of damage? What can the grantor do with the secured property? A Secured Loan Agreement will make all of these clear so both parties are sure of their position, rights and responsibilities.
Secured Loan Agreements are an almost necessary part of living. Most home or car buyers do not have the funds to buy a property outright. The only reasonable way for many people to own these is through a secured loan. These Secured Loan Agreements can be complex, important documents. No matter if you are a potential creditor or guarantor, you will need to know what the document states and make sure it does what you want it to do.