Secured and Unsecured Loans

It is possible to divide all loans into two basic types: secured and unsecured. What is the difference between these types of loans you will find in this article.

Secured loans are financial relations when the borrower grants the lien for drawing upon a credit. Such lien can be both movable property, and real estate of the borrower. One of popular kinds of secured loans is the mortgage when the borrower receives money resources on acquisition of housing accommodation on the security of this housing accommodation. The financial institution acquires a right of possession of the given real estate in case of default of treaty obligations by the borrower. The other property of the borrower can often act as the lien, for example, his car, and also the bank deposit or gold. The basic request to the lien is that its cost should be equal the loan or exceed it. The secured loan represents the minimum risk for the creditor; therefore it is easy enough to receive it, as a rule.

The unsecured loan is such a kind of crediting when financial institutions do not require neither guarantors under the credit, nor lien. In this case the warranty for the creditor is prospective possibility of the borrower to pay a debt. Therefore, before giving such loans, the creditor should receive certificates of solvency of the borrower, having studied his financial position and credit history. Banks often refuse to give unsecured loans to the person with financial history which banks recognise as bad.


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