Different forms of borrowing, secured and unsecured loans
Borrowing is receiving something of value in exchange for legal responsibility to pay back something greater at a later date. At least some form of borrowing is or was available to the majority of people being from mortgages to payday loans. There are many different forms of borrowing available for businesses and people today these include;
Bank Overdrafts- Bank overdrafts are either an Authorised Overdraft or an unauthorised overdraft. You are charged interest daily on what you are overdrawn by. Or charged a fee if you have went into an unauthorized overdraft.
Hire purchase-Hire purchase is where you hire the goods and they are not yours until they have been paid in full. While still making payments it’s a criminal offence to sell the goods
Pawnbrokers- A pawnbroker will lend money in accordance with the value of goods that have been left with then, for example jewellery.
Catalogues- This offers a way of buying goods and spreading the cost over a number of weeks
Credit cards/store cards- credit can be attained by banks, supermarkets and finance companies. When receiving credit a “Credit agreement” will have to be signed
Another form of borrowing is a secured loan, these are where assets are used to secure the loan, and this asset is usually your house. Secured loans are mainly very large loans but have a lower interest rate compared to some personal loans. Examples of some secured loans are;
Mortgages
Some personal loans (over £25,000)
Car loans
Unsecured loans is common form of borrowing and solely relies on the borrowers promise to repay what they have borrowed. Property or any other assets are not used as a guarantee. Interest rates are a lot higher than secured loans due to the amount of risk that is involved because they cannot take possession of your car or house. Unsecured loans are more used for smaller purchases. Some examples of unsecured loans are:
Payday loans
Guarantor loans
Personal loans (under £25,000)
All lenders have a responsibility to carry out credit checks on borrowers and to make sure they fully acknowledge the details of the credit or loan. The lender must be sure that this particular loan would suit