According to the RBI, banks have written off over Rs 2 lakh crore of bad loans in the fiscal ended March 2021. Find out more about the types of loans and when they are categorized as bad
People borrow money for various reasons. It could be to expand their business, to fund higher education, to buy a home or car, to get a ring for their girlfriend or wife.
Loans generally fall into two categories, secured and unsecured. Let us first understand what a secure loan is.
Secured loans are those for which a borrower keeps some asset as surety or collateral to borrow money. Collateral can be your car, your home, or anything that is valuable.
It simply means that in the event of default, the lender can use the asset to repay the funds it has advanced the borrower.
Common types of secured loans are mortgages and auto loans, in which the item being financed becomes the collateral for the financing. With a car loan, if the borrower defaults on the payment, the loan issuer can seize the vehicle.
When an individual or business takes a mortgage, the property in question is used to back the repayment terms. In fact, the lending institution maintains equity in the property until the mortgage is paid in full. If the borrower defaults on the payments, the lender can seize the property and sell it to recoup the funds owed.
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