A loan which is granted to the borrower without using collateral is referred to as a personal loan. Here the individuals guarantee to pay and his credit suitability plays an important role rather than the pledged asset. It is the loan that is given for personal use and creates consumer credit. It is generally unsecured in nature and relies on the borrower’s capability to pay. The kinds of personal loans granted are primarily based on the requirements of the borrower’s, the purpose of the loan, the sum of money required and time of repayment. A number of these loans are also secured by some kind of collateral security that may include a car or a home or jewelery only if the individual defaults in payment.
Secured loans are loans in which a borrower pledges some assets as collateral security making it a secured debt. In case the borrower defaults in payments the creditor has the right to take possession of the asset pledged as security security. By granting loans through security the creditor is relieved from major fiscal risks as he is allowed to take ownership of the asset promised. The creditor has the selection of granting loans with tasty rates and also repayment periods.
To help scholars pay for their further education, university costs, books, tuition charges and other varied expenses a student’s loan has been designed. This loan differs from other kinds of loans principally thanks to the lower rates and less complicated repayment terms. Repayment on the principal amount and interest is deferred until the scholar is out of College. The choice of extension of loan is offered by the bank which includes extended payment period.
Unsecured loans are those loans which are granted by the bank to the borrower only on the latter’s credit rating and not on any collateral security. Here the lender must have full knowledge on the subject of the borrower’s credit rating as he's under enormous fiscal risk. In the case of insolvency of the borrower, the unsecured creditors have no claim over the assets of the bankrupt borrower.
Many business companies obtain a loan from banks for their expansion and growth. Such loans are termed as corporate loans. These bank loans are used by many firms to finance and expand their operations. These loans help business firms increase production without investing their own capital and most likely gain profits. Obtaining such loans helps business firms in increasing their stability and earns goodwill which increases the credit score of the firms.
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