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Give an Asset and Take a Loan

Most of us have become habituated to using the credit card these days. Walk into any store and you will find the sign, "We accept credit cards", hanging at the door. Moreover, people in general are increasingly going the credit card way if they are making some sort of purchase. In the old days, if someone wanted to buy a product on credit, some sellers made it a point to ask for security. This was the way in which they reassured themselves that they would be reimbursed eventually. Similarly, when we approach banks for personal loans, they have what is called secured loans wherein the borrower needs to offer property or some other kind of an asset as collateral. The bank will hold custody of the same till such time as the loan is repaid. However, if the borrower fails to make the payment, the bank can either sell or auction the asset and recover the money that was their due. This collateral is held as security by the bank till the loan duration is completed. The asset used as collateral is finally returned to the borrower upon clearance of the loan amount.

By offering a secured loan, the creditor is saved from unnecessary risk. At the same time, the borrower also realizes that he needs to keep up with the payments if he wishes to hold on to his asset. A rather popular kind of loan offered by banks is what is called a savings secured loan. This is a loan whereby the borrower is required to have an existing savings account with the bank and a portion of the funds in the account is used as collateral. Since he has been with the bank for a while, the banker knows of his credit standing and is reassured of payment. Once the loan is repaid, the portion held as collateral is relieved and given back to the borrower.

Another form of secured loan is the mortgage loan wherein the person borrowing must pledge his house or any property against the money that has been lent to him. If the person concerned has a good financial standing and is sure of being able to repay the loan, then he should opt for the secured loan as this offers the least risk and the loan is also relatively cheaper. In case he is not able to repay the borrowed amount, the bank will do a foreclosure. What this means is that the bank will take possession of the property and dispose of it in any way that it desires in order to obtain the money due to them. However, if a loan was secured whereby the borrower bought a vehicle or property, the bank has the right to repossess the same in order to recover the amount that was offered as loan.

These are just two of the various kinds of secured loans that are available in today's markets. The astute loan seeker would have to do some extensive looking around if he wishes to get to the cheapest loans in the markets.

By: Ajeet Khurana

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