banking accountsAsset based loans, also referred to as secured loans, are types of loans that are backed by collateral or an asset. Most borrowers put up their own personal property, stocks or bonds as collateral. Sometimes, the purchase for which the loan is meant, like a vehicle or house, is used for collateral, and the lender will place a lien on it. The bank or finance company will hold the deed or title until the borrower satisfies the loan.

Those who need to receive a significant sum of money in a short amount of time will find that asset based loans are their best choice. Since financial institutions prefer to reduce their lending risk as much as possible, borrowers who use their property as collateral tend to have a better chance at securing the loan they need.

However, secured loans are not only for new item or property purchases. Lenders will offer these loans in the form of a second mortgage or home equity credit line. The amounts of these loans are calculated based on a home’s equity, or remaining value after subtracting the current mortgage balance. Second mortgages and home equity credit lines that are secured use the home as collateral. Therefore, borrowers who default on the aforementioned loans risk losing their house.

Personal property may also be held as collateral for consumers who need to take out a debt consolidation loan. People who have multiple high interest debt payments every month can get a secured debt consolidation loan. This loan allows the borrower to pay off each creditor while making a single monthly payment towards the consolidation loan. The lower interest rate and monthly payment make this type of asset based loan a popular option among today’s consumers.

Secured loans cannot be used for every kind of financial need or want. So on the opposite side of the lending spectrum, there are credit based loans, or unsecured loans. Basically, credit based loans are the complete opposite of asset based loans South Carolina. These loans are typically given to borrowers who need to pay their bank note, school tuition or credit card balance, all of which tend to have a higher interest rate than the secured loan.

The main positive aspect of asset based loans is that their interest rates are lower than credit based loans. A lender charges more interest for unsecured loans because the borrower is not required to provide collateral. People who do not qualify for an unsecured loan due to their credit history, but do own property with enough value, are good candidates for an asset based loan.