When it comes to secured loans, there are a few general principles that you need to know. In this article, we'll discuss what a secured loan is, how it works, and the general principles relating to secured loans.
Meaning and Definition of Secured Loan -
Section 5(n) of the Banking and Regulations Act, 1949 defines Secured and Unsecured loans According to Section 5(n) “secured loan or advance” means a loan or advance made on the security of assets the market value of which is not at any time less than the amount of such loan or advance; and “unsecured loan or advance” means a loan or advance not so secured;
In simple words, A secured loan is a type of loan that is backed by collateral. This means that if you default on the loan, the lender can seize the collateral and use it to repay the loan. Secured loans are often used to finance major purchases, such as a car or a home.
General principles relating to Secured loans -
a) A secured loan is a type of debt backed by an underlying asset or collateral -
Performance-based secured loans are backed by an underlying asset and pay interest only if the debtor meets its obligations to repay the loan.
b) The collateral is given up to the lender as security for repayment of the loan -
A secured loan is a type of loan where the borrower pledges some property or asset as collateral for the loan. The terms of the secured loan are usually based on the value of that asset and the terms of repayment.
c) The borrower cannot be minor -
In the Secured type of loan Minor cannot be the Borrower.
d) The object loaned for should be movable property.
e) The object loaned for should be free from any encumbrance.
f) The lender should be the owner of the object loaned for.
g) A mortgage or pledge of movable property belonging to a third party is invalid.
h) The lender should have in his possession the movable property which is given as security of the loan.
i) The lender should not part with possession of the movable property until the debt is repaid.
j) The lender has the authority to sell the collateral in case of default -
The lender can collect a late payment penalty if the borrower doesn't make payments on time. If the borrower stops making payments, the lender will sell the respective property and get most of what it's worth from the sale.