An equipment loan, for instance, is a type of secured business loan. Say you own a construction business and need to purchase a new dump truck. You could use an equipment loan, secured by the dump truck you plan to purchase, to pay for it. As long as you pay the loan on time, you wouldn’t be at risk of losing the equipment you purchased.?
One thing to note about secured business loans is that you may also be required to sign a personal guarantee. This means that you agree to be personally liable for any debts taken out by your business if the business defaults on the loan. So if your business runs into cash flow issues, for example, you could be personally sued for a defaulted loan.?
Car Title Loans and Pawnshop Loans
Other types of secured loans include car title loans and pawnshop loans. Car title loans allow you to borrow money using your car title as collateral.? Pawnshop loans can use anything from tools to jewelry to video game consoles as collateral, depending on what you’re willing to pawn. These are generally short-term loans that allow you to borrow small amounts of money.?
Car title loans and pawnshop loans can carry interest rates that are well above average compared with other types of secured loans, and if you fail to repay them, you could lose your car or your personal assets held in pawn.
Life Insurance Loans
A life insurance loan lets you borrow money against a life insurance policy using its cash value as collateral. You could then repay the loan during your lifetime or allow the loan amount to be deducted from the death benefit paid to your beneficiaries when you pass away. This type of loan is available with permanent life insurance policies, such as variable or whole life insurance.?
Bad Credit Loans
Bad credit personal loans are another category of secured loans. These are personal loans payday loans in Ohio Akron OH that are designed for people with poor credit history. Lenders can offer bad credit personal loans, but they may require some type of cash security, similar to share-secured loans, secured credit cards, and secured lines of credit. Note that a lower credit score can translate to a higher interest rate and/or fees with a bad credit secured loan.?
Where to Find Secured Loans
Secured loans can be found at banks, credit unions, or online lenders. When comparing secured loans, there are some important things to keep in mind. For example, you’ll want to look at:
- What type of collateral is required to secure the loan
- The interest rate and annual percentage rate (APR) for the loan
- Whether the loan interest rate is fixed or variable
- Any fees the lender charges, such as origination fees or prepayment penalties
- Minimum and maximum loan amounts
- Credit score and income requirements for the loan
Comparing loan rates and terms with multiple lenders can give you an idea of how much a secured loan is likely to cost. You can also compare them using an online secured loan calculator to estimate your monthly payments and the total amount of interest paid.
In the case of a secured business loan, you want to be sure to check the requirements for a personal guarantee. While this practice is fairly common with both secured and unsecured business loans, you don’t want to be taken by surprise. And with a secured credit card, it’s helpful to ask the credit card company if there’s any way down the line to have the account converted to an unsecured card and your security deposit refunded to you.