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    Loan Categories

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    Sangeeta Sehrawat
    There are two main types of loans - secured and unsecured. Secured loans require collateral that is forfeited if the borrower defaults, while unsecured loans do not have collateral but are riskier for banks. There are also commercial loans for businesses and demand loans that do not have a fixed term and are payable whenever requested. The key principles of lending for banks are stability, liquidity, profitability, safety, and diversity to minimize risk.

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    Loan Categories

    Uploaded by

    Sangeeta Sehrawat
    5 views6 pages
    There are two main types of loans - secured and unsecured. Secured loans require collateral that is forfeited if the borrower defaults, while unsecured loans do not have collateral but are riskier for banks. There are also commercial loans for businesses and demand loans that do not have a fixed term and are payable whenever requested. The key principles of lending for banks are stability, liquidity, profitability, safety, and diversity to minimize risk.

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    There are two main types of loans - secured and unsecured. Secured loans require collateral that is forfeited if the borrower defaults, while unsecured loans do not have collateral but are riskier for banks. There are also commercial loans for businesses and demand loans that do not have a fixed term and are payable whenever requested. The key principles of lending for banks are stability, liquidity, profitability, safety, and diversity to minimize risk.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    5 views6 pages

    Loan Categories

    Uploaded by

    Sangeeta Sehrawat
    There are two main types of loans - secured and unsecured. Secured loans require collateral that is forfeited if the borrower defaults, while unsecured loans do not have collateral but are riskier for banks. There are also commercial loans for businesses and demand loans that do not have a fixed term and are payable whenever requested. The key principles of lending for banks are stability, liquidity, profitability, safety, and diversity to minimize risk.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    LOAN CATEGORIES

    Types of Loan

    Secured loan

    This is a loan which has been secured by some asset or


    property. So the borrower will pledge his assets against the
    loan. In case the borrower defaults on his loan, the bank will
    become the owner of such asset. It can sell the asset and
    recover the amount owed to them.

    Unsecured loan

    This is quite opposite of secured loan , an unsecured loan is one in which the borrower does not keep any
    of his assets as collateral. These loans are always riskier from the bank’s point of view, but they are an
    essential tool for the bank.
    Types of Loan
    Commercial loan

    These are generally taken by business and companies for


    capital requirements or funding of operational costs.
    Commercial loans generally tend to be secured by some
    collateral assets. The amount of loan is also generally higher
    than personal loans.

    Demand loan

    These are typically short-term loans. They do not have a fixed term. This means that they are payable ,
    whenever the lender demands, the borrower has to repay. A demand loan also will not have a fixed
    rate of interest.
    PRINCIPLES OF LENDING
    Principles of Lending
    Lending of funds means providing funds to the customers from the deposits held in a bank.

    There are certain principles associated with lending which are mentioned below :-

    Stability - Commercial banks must invest only in securities that can provide sufficient stability. This
    is one of the important principles that must be followed by the bank to avoid losses .

    Liquidity - Bank grants advance loans on securities that can be easily converted and marketed into cash
    within short notice. This is what liquidity means and is an important principle of bank lending.

    Profitability - The amount that is being invested must generate profits and hence profitability is referred to
    as one of the important principles of lending. The interest rate of the loan decides the earning capacity of
    securities.
    Principles of Lending
    Safety -

    ● Safety refers to the fact that the borrower should be able to repay the loan.
    ● Also, the repayment is based on the character of the borrower, his/ her capacity and the nature of
    the security associated with the loan.
    ● Hence, the lender from the bank must maintain the principle of safety and look into the financial
    stability of the person.

    Diversity -
    ● Any commercial bank must follow the principles of diversity while lending.
    ● The bank must be careful that the investment of the surplus funds is diversified and not limited.
    ● Also, the bank tries to maximize diversity to minimize the risk concerning the investment portfolio

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