It is a well known fact that loans are given against a security. The borrower is required to put up his property as a security to obtain a loan. Such a loan is known as a secured loan. The most common type of
secured loans is homeowner loans. The borrower has to offer his house as collateral to obtain a homeowner loan.
If the borrower does not own a property to offer as a security, he can apply for an unsecured loan. Unsecured loans do not require , secured homeowner loan.
Secured loans have several advantages over unsecured loans such as lower rates of interest, small amount of monthly payments, flexible repayment terms, etc.
It is also possible to obtain a loan secured against the guarantee of someone you know. You must be very careful while guaranteeing a loan for your friend or relative. Guaranteeing a loan is a nice thing to do if your friend or relative is in an urgent need for money. However, you must know a few things before you guarantee a loan.
When you guarantee a loan, you become the guarantor and the person who gets the loan becomes the borrower. If the borrower does not repay the loan, you will have to pay the loan amount on his behalf. Not only that, you will also have to pay the outstanding interest and late fee, if any. In case of the borrower's default, you are under a legal obligation to repay the loan and the lender can initiate legal proceedings against you. If you do not repay the loan, your credit score will get a beating. Other lenders will treat you as if you have defaulted in the loan repayment.
If you guarantee a loan for a friend or relative, make sure that you will be able to repay the loan in case the borrower fails to make the repayment. Ask the lender to inform you whenever the borrower fails to make payments on time. Guarantee a loan for someone whom you know very well and can trust. Guaranteeing a loan is a very risky thing and you must put your step forward very carefully
