It is a well known fact that loans are given against a security. The
borrower is required to put up his property as a security to obtain
a loan. Such a loan is known as a
secured loan. The most common type
of secured loans is
homeowner loans. The borrower has to offer his house as collateral to obtain a homeowner loan.
If the borrower does not own a property to offer as a
security, he can apply for an
unsecured loan. Unsecured loans do not
require collateral. Secured loans have several advantages over unsecured loans such as lower rates of
interest, small amount of monthly payments, flexible repayment terms etc.
It is also possible to obtain a loan secured against the
guarantee of someone you know. You must be very careful while guaranteeing
a loan for your friend or relative. Guaranteeing a loan is a nice thing
to do if your friend or relative is in an urgent need for money. However,
you must know a few things before you guarantee a loan.
When you guarantee a loan, you become the guarantor and
the person who gets the loan becomes the borrower. If the borrower does
not repay the loan, you will have to pay the loan amount on his behalf.
Not only that, you will also have to pay the outstanding interest and
late fee, if any. In case of the borrower’s default, you are under
a legal obligation to repay the loan and the lender can initiate legal
proceedings against you. If you do not repay the loan, your credit score
will get a beating. Other lenders will treat you as if you have defaulted
in the loan repayment.
If you
guarantee a loan for a friend or relative, make
sure that you will be able to repay the loan in case the borrower fails
to make the repayment. Ask the lender to inform you whenever the borrower
fails to make payments on time. Guarantee a loan for someone whom you
know very well and can trust. Guaranteeing a loan is a very risky thing
and you must put your step forward very carefully.
About The Author
The author is a business writer specializing in finance and credit products and has written authoritative articles on the finance industry. He has done his masters in Business Administration and is currsently assisting finance-hub.co.uk as a finance specialist.
For more information, please visit
www.finance-hub.co.uk
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