What is a Secured Loan?

What valuable possession could you do without if you needed to borrow money? That's the question to ask yourself if you ever consider taking out a secured loan.

According to Business Day, Capitec Bank's total personal loan book value is over R40 billion since 2016, with Standard Bank and African Bank not far behind with the second and third largest personal loan books respectively.


In a tough economy, it's no surprise so many South Africans are getting financial assistance. If you need a little extra financial help and are looking at personal loan quotes, have you considered a secured loan?


Secured loans explained


A secured loan is one that requires the borrower to offer the creditor an asset, such as a car or property, as collateral until the loan has been paid off. After the loan is settled, the borrower reclaims full possession of the asset. If the borrower fails to repay the loan in full, the creditor can take possession of the asset and may sell it to regain the money borrowed.


Are secured loans legal?


Yes, they are completely legal. Much like any other kind of loan, the lender or financial institution takes a calculated risk in lending money. If the money isn't paid back and there is no insurance on the loan, the financial institution may begin the debt collection or repossession process. Many financial institutions either use internal debt collecting personnel or third-party debt collection facilities.


Advantages of secured loans


Since the lender can take possession of the specified asset if you default on payments, their risk for lending you the money is lower. This means you can often borrow more money with a secured loan than you can with other types. You're also generally given a longer repayment period. Home loans are a form of secured loan where you borrow money against your home. Note that the lender doesn't necessarily take physical possession of the asset while you're repaying the loan.


Disadvantages of secured loans


Secured loans require the borrower to potentially hand over a very valuable asset to the lender – meaning, if the borrower fails to repay the loan the lender acquires that asset. Here's an example: A student who needs a study loan could put their car up as collateral if they are both similar in value. If the student can't repay the loan, the lender legally takes possession of the car and the student has lost that asset.


If used wisely, any kind of personal loan can help to ease pressure. If you want to find out more about how you could give your budget a bit of breathing room, have a look at our comparison tool that will source a number of personal loans quotes (unsecured) for you in minutes. Before you commit, hippo it!


Prices quoted are correct at the time of publishing this article. The information in this article is provided for informational purposes only and should not be construed as financial, legal, or medical advice.