Different types of Loans meaning Debt Financing

1. www.loanXpress.com
Types of Debt

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Index
No. Description Page No
1. Secured Debt 3
2. Unsecured Debt 4
3. Advantages of Secured and Unsecured Debt 5
4. Disadvantages of Secured and Unsecured Debt 6
5. Types of Security Can Offer 7

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Secured Debt
Secured debt is money borrowed that is guaranteed (or secured) by
the borrower’s funds or assets and held by the lender in an interest-
bearing account.
Since secured debt is a loan that is guaranteed by collateral, the
lender can offer better rates than an unsecured debt.
Collateral is an asset used to secure a loan; it is something that the
lender can take if the borrower defaults.
Although secured debt generally has a much lower interest rate than
unsecured debt because it minimizes the lender’s risk.

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Unsecured Debt
Unsecured debt refers to any
type of debt or general
obligation that is not
protected by a guarantor, or
collateralized by a lien on
specific assets of the
borrower in the case of a
bankruptcy or liquidation or
failure to meet the terms for
repayment.
Because the loan is not backed
by anything other than the
borrower's promise to repay,
an applicant's credit history and
scores are very important.
unsecured debt tends to come
with a high interest rate
because more risk is involved in
giving unsecured loan. The
interest rate may also vary
according to the lender’s
policies and the credit rating of
the borrowers.

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Advantages
Secured Debt
• There is ability to get a secured loan with a less-than-perfect credit history. Since you have to
provide collateral for a secured loan, lenders will be assured that they will get their money
back even if you default on the loan.
• Interest rates for secured loans can be relatively low. Right now, the cheapest secured loans
are at around the 8.5% mark.
Unsecured Debt
• There is no collateral required, you do not risk losing any personal property such as a home
or car.
• Unsecured loans are a better option for consumers who only need to borrow a small amount.

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Disadvantages
Secured Debt
• If there is a default in making regular payment the lender has the right to repossess your
pledged assets to recover the money is owed.
• Repayment periods are generally longer than with an unsecured loan meaning you are in
debt for a longer time.
Unsecured Debt
• The repayment period is usually shorter than with a secured loan resulting in higher payment
amounts.
• Since there is no collateral required, lenders normally charge higher interest rates for
unsecured loans.

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Types of Security Can Offer
• Guarantors sign an agreement stating they'll guarantee the payment of the loan.
• Endorsers are the same as guarantors except for being required, in some cases,
to post some sort of collateral.
• Co-makers are in effect principals, who are responsible for payment of the loan.
• Accounts receivable allow the bank to advance 65 to 80 percent of the
receivables' value just as soon as the goods are shipped.
• Equipment provides 60 to 65 percent of its value as collateral for a loan.
• Securities allow publicly held companies to offer stocks and bonds as collateral
for repaying a loan.
• Real estate, either commercial or private, can be counted on for up to 90 percent
of its assessed value.

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We would love to assist you
Get in Touch
Corporate Office:
Vermillion Finalytics Private Limited
4D, Siddhivinayak Chambers,
Gandhi Nagar,
Opp MIG Cricket Club,
Bandra (E),
Mumbai – 400 051
Telephone : (022) – 2655 8760
Tollfree : 1800 – 228 - 005
Email : info@LoanXpress.com
Website : www.LoanXpress.com

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Thank You