A secured loan is a loan in which the borrower puts up some form of asset as collateral for the loan such as a house, a car, property or something that has value to the lender that can be turned over into cash in the event the loan is defaulted. Mortgage loans are the most common type of debt instrument, used by many individuals to purchase a home or any time of property.
With mortgages, the money is used to purchase the property. The lender is generally given security in the form of a lien on the title of the house or property until the borrower pays off the mortgage in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover the remainder of the money owed to the lender.
In some cases, a loan taken out to buy a new or used car may be secured by the vehicle in a similar way as a mortgage is secured by a home or property. The loan period is much shorter in these cases usually in relation to the life of the car.
An unsecured loan is a monetary or cash loan that is not secured against any of the borrower’s assets. These are marketed by financial institutions and sometimes called, credit card debt, personal loans, bank overdrafts, credit facilities, lines of credit or corporate bonds. Interest rates on these loans may vary depending on the lender and the borrower. These lans may or may not be regulated by law and financial institutions position and package these products based on their specific market.
A demand loan is a short term loan that does not have fixed dates for repayment and carry a floating interest rate. This floating interest rate varies according to the current prime rate. They can be “called” for repayment by the lending institution at any time and demand loans may be unsecured or secured.
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