Demystifying Secured Loans


Demystifying Secured Loans

Loans are a necessary evil. Whether you are an individual or running a business, at one point or another, you may be faced with the situation to support your finances through loans.

There are as many sources of loans as there are types of loans. The most common types include Secured loans, Bridging loans, Development loans, Commercial loans, and BTL.

Let us take the Secured Loan and learn more about it.

What is a secured loan?

A secured loan is a type of loan that you avail against something of value that you own. For example, you can pledge your property, jewellery, or car as a sort of hedge in order for the lender to recover the principal and interests due should you default on your payback. Such type of security is called collateral.

What are the advantages of a secured loan?

Since secured loans pose hardly any risk and are inherently safe from the perspective of the lender, as a token of reciprocation, he offers secured loans at a much-reduced rate of interest. As a borrower, you enjoy high bargaining power in terms of maximizing the loan amount.

What about the disadvantage? Well, the procedure for applying for secured loans is in most cases a bit lengthier as we shall see how.

How does it work?

After you have completed the initial formalities like filling in and submitting the form, your borrower will ask you to transfer the title of your property and assign it in his name. This may involve a fee and availing legal help. The assigned property will be under your borrower’s possession until the time you repay the loan in full along with interests and other charges. Until such time, the lien will be with the borrower, but you will be required to pay incidental fees related to the property pledged such as insurance, local taxes, etc.

Should you default on your repayment, the lender will take possession of the asset and recover the outstanding amount from you from the proceeds.

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  • 24 Mar, 2019
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