Quick Secured Loan
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A quick secured loan may be obtained from several different sources. Which one the borrower chooses may depend on his definition of quick. Unlike an unsecured, or signature, loan, a secured loan is attached to a tangible asset which acts as collateral for the borrowed funds. The two most common examples of these kinds of loans are a home mortgage and a car loan. If the payments are missed, the lending institution can foreclose on the house or repossess the car. Another common example is the small business owner who uses her business equipment as collateral for borrowing funds for capital and/or operating expenses. These same assets may be used for an additional quick secured loan if there is remaining equity that can be tapped for collateral.
Homeowners do this all the time. They apply for a second mortgage or home equity line of credit (HELOC) to tap into the remaining equity of their properties. Equity is the difference between an asset's value and the amount that is already owed on the asset. As an easy example, a couple may owe $50,000 on a property valued at $100,000. The equity is $50,000. Many online lending institutions promote the convenience of a quick secured loan that allows applicants to borrow or open a line of credit equal to some amount that will be secured by the property. In these kinds of instances, the first mortgage has precedence over the second one. If the property owner starts missing payments and the house is foreclosed upon and sold, the first mortgage holder is paid first out of the sales proceeds. The second mortgage holder or holder of the HELOC note gets paid second. Obviously, there is a risk that the property will not sell for an amount to completely repay both the first and second mortgage holders. This is why the interest rate for the second mortgage or a HELOC is typically higher than the interest rate on a first mortgage. The higher interest rate reflects the higher risk of the second mortgage holder.
Home equity is a common source of borrowed funds. Fewer people are able to tap into the equity of a vehicle to borrow money. In fact, it's probably safe to say that many people who own money on their cars are upside down in the loans. This means that they owe more money for the car than it's worth. Depreciation on a car happens rapidly which is why some financial experts warn consumers not to buy new cars. Owing more on a car than the value can cause economic difficulties for consumers. But if a person owns a car free and clear, he may be able to get a quick secured loan from a lending institution that specializes in title loans. If the applicant is approved the loan, he turns over the title to the lending institution who places a formal lien on the vehicle. Now it's impossible for the car's owner to sell the vehicle until the loan has been repaid which is a protection for the lender.
Another source for a potential borrower to obtain a quick secured loan is the local pawn shop. Instead of big ticket items like a house or a car, the potential borrower can take smaller personal property to the pawn shop. The personal property is the collateral for the borrowed money. The pawn shop owner or a specially trained employee will assess a value to the personal property and take possession of the item. The borrower will receive a quick secured loan and a ticket that can later be used to identify and redeem the item. If the borrower does not pay back the agreed upon amount and take back the item within a certain time frame, the pawn shop manager is free to sell the item in the store. The concept of redemption goes back to ancient history and was an important them in the Old Testament book of Ruth. In this story, Boaz redeems the property of a relative after a closer kinsman refuses the responsibility. "And the kinsman said, I cannot redeem it for myself, lest I mar mine own inheritance: redeem thou my right to thyself; for I cannot redeem it. Now this was the manner in former time in Israel concerning redeeming and concerning changing, for to confirm all things; a man plucked off his shoe, and gave it to his neighbour: and this was a testimony in Israel. Therefore the kinsman said unto Boaz, Buy it for thee. So he drew off his shoe" (Ruth 4:6-9). People often pawn such items as jewelry, computer equipment, television and stereo equipment, collectibles, and other items that have enough value to get quick cash with as little fuss as possible.
The line between a quick secured loan and an unsecured loan can be blurry. For instance, many in the financial industry classify payday loans, also known as cash advance loans, as being unsecured. However, others place them in the secured category. In a payday advance, the applicant gives the lender a check that totals the amount that is borrowed and the applicable fee in exchange for the borrowed funds. The cash advance company holds the check until the agreed upon date and then cashes it. Or the applicant may provide the company with the account number for her checking account. On the due date, the cash advance company is able to pull the borrowed money and fee from the applicant's checking account. In this sense, the check or the bank account number is the asset that is being used as collateral, making the payday advance a type of quick secured loan. However, because of the high interest rate (when calculated in terms of annual percentage rates), a payday advance should be at the bottom of any potential borrower's list of options.
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