Unsecured Loan

2007-03-08 10:33:40

( Financial )



Loans in General
Loans are contracts that involve a lender and a borrower. The lender will give money to the borrower, who will promise to repay it at a later time. Sometimes, loans will require collateral to stand as security for the payment of loans. Loans that do not require collateral are called unsecured loans.

Unsecured Loans
Unsecured loans are granted to persons who demonstrate impeccable credit. Because an unsecured loan cannot provide a guarantee of payment other than a promise by the borrower, it is a huge risk for the lender. Hence, the persons or entities granted unsecured loans are usually people with impeccable credit or companies with an excellent reputation and credit history.

Unsecured Consolidation Loans
A consolidation loan is a large loan into which other debts are folded. If your company has several loans payable to different lenders, a new loan can be taken out to cover payment of all those loans. This is called debt consolidation. Your company will thus have a new contract to pay only one lender, who, in practical terms, will take care of paying all the other debts. The technical term would be to fold the debt equity into a consolidated loan. If your company is reputable and has an excellent credit history, it may even be granted an unsecured consolidation loan.

However, if the loan amount is very huge, the lender will ordinarily require a form of security. This may require you to mortgage property or to give collateral. Collateral is property that is promised to stand as security in case the loan is not repaid. Using your company as an example once more, you may be asked to use your company vehicles or equipment as collateral. If these things are used as security, and you loan is not paid, they will be sold, and the proceeds will be used to repay the dues of the loan.


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