Secured Finance – What is it?

A secured finance is one in which you mortgage an asset (say a car or land) to serve as collateral. The lender then has rights to sell off this asset to settle debts in case the borrower fails to repay outstanding dues. The lender may or may not recover his debts completely. Collateral that fail to raise enough money may also allow the lender to enter into deficiency judgement, penalizing the borrower into paying the lender in full when the said resources have been accrued.

Why Mortgage Assets against loan?

From financial standpoint, an unsecured loan might appear very lucrative as there is no collateral involved. However, on the contrary, such loans can pinch you in the long haul because the interest rates are usually exorbitant.

Unsecured loans are best for short terms or when the tenure of repayment is not long enough to incur significant interest. But when the same loan spans for a long period, even a percent extra interest rate can compound to enormous repayment amount.

Still, loans secured against assets are more easily approved with lower interest rates as they are less likely to become NPA. Even if the account turns non-performing, liquidating collateral can pay off huge portions of the loan.

Without a credit history you could have a difficult time finding borrower, especially for unsecured loans. Secured funding is comparatively easier to get approved, even with a broken credit score.

Ways in which you can get secured funding

Depending upon what collateral you secure against the loan, there are several ways to avail funding -

• Mortgage Secured Loans: such types of secured loans have an immovable property as its securing collateral. Example include, loan against land, home or commercial complex.

• Vehicle Loans: such loans are guaranteed against a vehicle (movable asset). Your credit score could be scrutinized prior to the approval. A bad credit health could also get you funded but at the cost of unusually high interest rate.

• Non-Recourse Loan: the lender of non-recourse loan has his bundle of rights limited to the collateral only. Under circumstance the collateral fails to repay the amount entirely, there is no recourse against the borrower. The lender may not even enter deficiency judgement.

• Savings-Secured Loans: it is money-against-money funding. The borrower is lent loan against his deposits (such as fixed deposit) or other monetary assets.