Secured Student Loans

secured loansSecured student loans are products that allow a student to fund an education using some sort of tangible item as collateral. In general, these are loans that banks find favorable. Instead of simply relying on a student’s promise to pay back the money when the classes are through, the bank has something it can take back if payments don’t materialize, when a secured student loan is in play. However, student loan collateral might be hard for some to obtain.

Typical Choices

Secured loans are typically a picture of balance. The lender offers a specific amount of money, and the borrower offers up an item that’s worth the same, or even more, than the amount the lender is willing to provide. When it comes to secured private student loans, coming up with this kind of collateral can be difficult.

A typical piece of collateral that would cover the amount of a student loan is a house or some other piece of property. However, the U.S. Census Bureau suggests that only 36.8 percent of people younger than 35 own homes. Those younger than 20 often don’t live in their own homes as living with their parents is more affordable. Others are not capable of purchasing a home due to the loans they’ve already taken out in order to fund their education.

Some types of cars are also suitable to use as collateral in secured loans for students, but a study conducted by the University of Michigan’s Transportation Research Institute suggests that only 69.5 percent of 19-year-old individuals in the United States are even licensed. Those who don’t have licenses obviously don’t need cars, and those who do often do not own their own cars.

All of the items must be under the student’s legal ownership, and the items can’t be shared with another person. However, if the items are of sufficient value, they could be acceptable to a bank.

Understanding the Terms

student in librarySecured student loans can have variable or fixed interest rates, and there may be fees associated with developing and managing the loan. Typically, these loans provide favorable terms to students, since the bank has something to repossess if the student defaults, but borrowers should still take the time to read the fine print, so they can ensure that they understand what they’re signing up for. Loans, whether secured or not, are legal documents, and they often come with stiff penalties if borrowers don’t adhere to the rules in these documents. Students who parse their choices carefully can ensure that they’re purchasing just the right product for them.

 

Types of Student Loans