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Loans Against Collateral Securities 🔗

Definition:

  • Primary Security: The asset created out of the loan (e.g., Car in a car loan, House in a home loan).
  • Collateral Security: Additional security given to back the loan (e.g., FD pledged for a business loan).

Why Collateral? If Primary Security depreciates or is destroyed, Bank falls back on Collateral.

Types of Collateral 📋

  1. Fixed Deposits (FDs): Safest. Lien marked.
  2. Immovable Property: Mortgage of house/land.
  3. Shares/Bonds: Pledge.
  4. Third Party Guarantee: A rich friend guarantees your loan.

Safety Measures 🛡️

  1. Margin: Always keep margin (Loan < Value of Security).
  2. Documentation: Proper Mortgage/Pledge deed.
  3. Monitoring: Regular check of value.

Quiz Time! 🎯

Test Your Knowledge

Question 1 of 3

1. Primary Security is:

Additional security
Asset created from loan
Guarantor
None

💡 Final Wisdom: "Collateral is the spare tyre. You hope you don't need it, but you can't travel without it!" 🚗🍩

Next up: Banking Receipts - The final lesson of Unit III! 🧾

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