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Secured Loans

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Definition:

A secured loan is a loan that has collateral attached to it. This type of loan generally has a lower interest rate because the bank is taking a lower risk because it can collect the collateral if you default on payments. A secured loan is a good way to build credit.

There are several types of secured loans. Mortgages and car loans are the most common types of loans. You can also get a secured credit card by attaching a Certificate of Deposit (CD) to a credit card. Banks will do this for customers who are trying to rebuild their credit history. The credit limit will be about the same amount as the CD and if you fail to pay, then the bank takes money from the attached CD.

If you have unsecured debt, you should not transfer it into a secured loan. Many people do this by taking out a second mortgage to pay off their credit card builds or taking a title loan on their car to pay off other bills. This puts your home or car at risk if you were to default on the loan later on. It is best to work on paying off your unsecured debt quickly.

Secured loans are available to people who have been denied unsecured loans. They are an excellent way to work towards building your credit score. Banks like them because there is less risk involved. The lower interest rates are also an advantage to choosing a secured loan. You should be careful as you choose what you will use as collateral most banks require a home or a car in order to give the loan, although a savings account such as a CD may work, but you will not be able to access that money for the entire duration of the loan.

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