Do you understand what constitutes a secured loan?  One of the problems so often facing people new to obtaining financing to purchase a car or other big ticket items is complete vagueness about the difference between a secured loan and and unsecured loan.  Schools utterly fail to provide a sound financial education, so we’re left to fend for ourselves without basic knowledge.  All too often that knowledge is gained through painful experience.  This article will help you understand what is a secured loan.

There are a few seeking a loan who do not fully understand the definition of secured loan and they will be shocked when they find out their car, or home, has been seized by the lender if they fail to repay the loan on time. The definition of secured loan is quite simply a loan secured by the assets owned by the borrower to reduce the risk of loss. If the borrower fails to uphold their end of the bargain, the lender gets the assets.

When you enter into an agreement for a secured loan, you are promising to repay the loan in accordance with the agreement. The lender has completed their part of the agreement by giving you the money. If the you fail to repay the loan as promised then the lender can seize the assets to recoup the money loss under the written terms of the secured loan.

While a great many lenders do not want to take possession of the assets and would rather work with someone to repay the loan, others are in the business of lending money to bad risk borrows in hopes they fail to repay the loan so as to be able to seize the assets used as collateral for the loan. By definition of secured loan they are within their legal rights to do so and this is considered by most to be predatory lending.

Loan Fraud On The Rise

While there are a few lenders causing problems for borrowers, there are also a few borrows attempting to commit fraud by obtaining a loan without owning assets. The definition of secured loan clearly states the assets must be owned by the borrower, however there are some who may present false documentation to verify ownership when in fact the assets belongs to someone else.

This can happen, especially when loans are taken out over the internet and ownership verification is faxed in and the person processing the application is not familiar with all documentation. Once the loan is issued and the borrower defaults the company cannot seize the assets because they do not really belong to the borrower. A third party is not responsible for an action they were not a party to, nor aware of. By definition of secured loan only the person who initiated the action is responsibile. However, it does come down to the asset owner’s knowledge.

To gain a better understanding and learn more about secured loans, please visit Guide to Personal Secured Loans

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