Terms Commonly Used in Money Lending

When considering borrowing money for personal use or business, it is good to at least be familiar with terms that are used by moneylenders so that you know which one to go for, what your responsibilities are and what you need to have to entitle you to borrowed money. When you finally decide to borrow a particular amount, you will be able to discuss with the representative repayment schemes and options. You can also advise a foreigner friend or employee regarding the possibility of getting a foreigner loan.

The common terms associated with money lending are:

Secured Loan – As the name suggests, a secure loan allows you to borrow money as long as there are guarantees that repayment of the loan is secure or possible. These guarantees are in the form of assets such as a house, a car and stock or bond certificates. Jewellery may also be collected as a guarantee as in pawnshops. These guarantees are called collateral in financial parlance. In the event that a borrower is not able to pay the borrowed amount, the collateral that a borrower or debtor assigns becomes the property of the lender or creditor.

Unsecured Loan – An unsecured loan is money which is lent without being backed by assets but is given in assessment of a borrower’s creditworthiness. Creditworthiness is gauged if a borrower has high credit ratings. Moreover, the borrower’s ability to pay is gleaned from his or her pay slips and his or her income tax record. Unsecured loans have higher interest rates compared to secure loans because it covers the lender’s risk of lending money without a guarantee that the lender or creditor will be paid. Compared to credit cards, however, their interest rates are lower.

Short Term Loan – Generally, a short term loan is a loan that is payable within five years or less. Examples of short term loans are personal loans, payday loans, student loans and business loans. Some short term loans can be secured, requiring collateral. It can also be unsecured, depending on the amount borrowed. If the loan is made by a student, it may have a lower interest rate compared to that applied for by an employee or a business. In the case of a business, approval of the loan application is greatly influenced by its cash flow.

Long Term Loan – A long term loan is an amount lent to a borrower and is usually payable in more than five years. Long term loans typically involve a big amount that is used for the construction of a house or building, buying equipment to be used for business, including service vehicles. As collateral, it may require assets such as a car, business shares or stocks and bonds or a house. Long term loans often entail thorough and sometimes lengthy scrutiny of a borrower’s credit rating, credit reports, financial and bank statements as well as feasibility studies in the case of a business loan.

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