TYPE OF LOANS                   

SECURED

A secured loan is a loan in which the borrower pledges some assets (e.g. car or property) as collateral. A mortgage loan is a very common type of debt instrument , used by many individuals to purchase housing. 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 us secured by housing. The duration of the loan is considerably shorter – often corresponding to the useful life of the car. There are usually two types of auto loans, direct and indirect and indirect. A direct auto loan is where the bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

UNSECURED

Unsecured Loans are monetary loans that are not secured against the borrowers assets. These may be available from financial institutions under many different guises or marketing packages such as:-

• credit card debt;
• personal loans;
• bank overdrafts;
• credit facilities or lines of credit;
• corporate bonds (maybe secured or unsecured)

Interest rates on unsecured loans are always higher than for secured loans, because unsecured lenders 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. 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 non-collectible.

SOFT LOANS

You may want to borrow some money from your friends or family who want to help you turn your dreams into reality. To qualify as soft loans (also known as off-balance sheet finance), such loans need to be unsecured, open ended (no fixed repayment date been set) and possibly even interest-free.Also keep in mind that should the business fail; the chances of the granters of such loans to receive anything back would be slim to non-existent. Although this is an informal loan agreement, it would be advisable to enter into a written loan agreement, drawn up by an attorney. The loan agreement should set out the terms of the loan, and the rights and obligations of both parties. Should you fail to do that, the lender may for example, decide to ask for his money back.

 

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