Secured Finance: Beneficial to Lender & Borrower
Posted February 23rd, 2009 and last modified June 8th, 2011A secured debt is a loan given to a person against the security of a certain asset. This asset can be a movable asset such as a car, or immovable assets such as land, and real estate. If the person who has taken a loan defaults on repayment of the loan, the creditor has the right to claim your ‘collateral’, or property you’ve pledged for the secure finance.
The general opinion in the market is that a secured debt is beneficial only to the creditor because if the borrower defaults on payment they can always sell the asset and recover the money. On the face of it, this might look to be true but his is not entirely true because there are certain benefits to debtor as well.
Why Secured Finance is Beneficial to the Creditor
Security of Amount Lent
The most important benefit to the creditor is that the amount lent is secured. If there is a default by the borrower the creditor can sell the asset and recover the money lent to him.
High Ticket Loans
The creditor is able to disburse a higher loan amount per person. This is because the assets which are given to the lender as a security is usually of higher value. Since the value of asset is high a higher loan amount per person can be given.
More Loan Disbursals
These loans are secured and so the lenders are able to give loans to people even if they have a low credit score. The creditor is benefited because there is a considerable increase in the turnover of the loans given.
Less Number of Litigations
Since the loan is secured the borrowers are less like to default. This will help in preventing litigation which arises due to default in repayment of loan.
Why Secured Debt is Beneficial to the Borrower
There are various benefits that occur to the borrower when he takes a secured loan. Some of the benefits to the borrower(s) are:
Lower Interest Rate
The rate of interest that you pay on a secured loan is much lower than the interest rate on unsecured loan. This is because the rate of interest charged by the banks is directly related to the risk that they take in giving the loan. In a secured loan the risk of the lender is minimized because the loan that he has given is secured against an asset. Therefore the rates of interest charged for a secured loan is low.
Flexibility in Repayment
A secured loan is given based on the value of the asset be it movable or immovable, the lenders are more flexible with the repayment terms of the loan taken. Today if you take a car loan some lenders offer a repayment period of up to 7 or 8 years while you can get up to 20 years in a real estate loan. This makes the life of the borrower easier because the amount paid by him every month is small and he can easily repay the loan over the period of years.
Loan Availability even on Low Credit Score
The loans are made available to people who have a low credit score. This is because the creditor is secured against the asset and need not be much worried about the repayment capacity of I person. It goes without saying that the interest rate charged to a person with a high credit score is much lower than the interest rates charged for a person with a low credit score.
Interested in taking out a secured loan yourself? Visit the unsecured & secured personal loans section for a range of Australia’s most quality loan offers.
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