Secured loans are a common banking product. Examples often include a home mortgage, certain credit lines or credit cards, or vehicle loans. Understanding the specific limitations and features of these financial tools is essential for anyone who is considering a secured loan. Here are a few common questions that you may have. 

What to Know About Secured Loans

How do these loans work? 

Secured loans are backed by collateral that has value. For example, in a mortgage, your home is the collateral. If you were unable to pay your home loan, the lender could take possession of the house and resell it to make themselves whole. When you enter into a secured loan arrangement, you agree to the lender taking control of the asset if you default on your loan payments. 

How are they different from unsecured loans?

Unsecured loans are not backed by collateral. Basically, in an unsecured loan arrangement, the lender is willing to give you funds without any assets to reclaim their funds if you fail to pay them. Unsecured loans are usually based on other factors for approval, such as your credit score or financial profile. 

When can you benefit from a secured loan?

Secured loans come with various benefits. For example, you'll typically have lower interest rates since these loans are viewed as less risky from the bank's perspective. Long terms that can stretch for many decades are common, as well. Finally, you can build credit as you make consistent payments towards your secured loan. 

What can you use as collateral?

Generally, lenders have requirements regarding what they'll accept as collateral. If you're trying to get a mortgage, the house will likely be the collateral. For other loans, you might also be able to use other real estate, cash accounts, insurance policies, vehicles, and other assets.

What do you need to get approved?

The loan application process is usually straightforward. First, you'll fill out forms with basic identification and financial information. Then, the lender will look at your financial history, including your credit, to assess your eligibility. From there, they'll present you with terms and options. Once you select an option, they'll underwrite the loan further and present you with final approval. 

With hundreds of millions of dollars in assets and over 60,000 members across Hawaii, Hawaiian Financial Federal Credit Union is one of the leading financial institutions in the state, with a reputation for combining personalized service with technologically advanced personal banking solutions. Learn more about our broad array of services online, follow us on Facebook, Twitter, and Instagram for news and updates, or call (808) 832-8700 on Oahu or toll-free at (800) 272-5255 with any questions.