Take the credit for himselfThe loan is an agreement in writing between the lender and the borrower. The lender undertakes to make available a certain amount for a specific purpose and time, and the borrower agrees to use credit in accordance with its intended purpose and pay the amounts involved with due lender remuneration in the form of commissions and interest.
Secured
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral.
A mortgage loan is a very common type of money, used by many individuals to purchase things. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be secured by the car, in much the same way as a mortgage is secured by housing.
Unsecured
Unsecured loans are monetary loans that are not secured against the borrower's assets. These may be available from financial institutions under many different guises or marketing packages:
Interest rates on unsecured loans are nearly always higher than for secured loans, because an unsecured lender's options for recourse against the borrower in the event of default are severely limited. An unsecured lender must sue the borrower, obtain a money judgment for breach of contract, and then pursue execution of the judgment against the borrower's unencumbered assets (that is, the ones not already pledged to secured lenders). In insolvency proceedings, secured lenders traditionally have priority over unsecured lenders when a court divides up the borrower's assets. Thus, a higher interest rate reflects the additional risk that in the event of insolvency, the debt may be uncollectible. |