Types of Collaterals and Their Characteristics | PAPER II – PRINCIPLES & PRACTICES OF BANKING | MODULE B: FUNCTIONS OF BANKS
Types of Collaterals and Secured/Unsecured Loans Types of Collaterals and Their Characteristics Collateral refers to an asset that a borrower offers to a lender to secure a loan. If the borrower defaults, the lender can seize the collateral to recover the loan amount. 1. Types of Securities Tangible Securities: Physical assets such as land, buildings, goods, and vehicles. Intangible Securities: Non-physical rights like book debts, shares, debentures, and life insurance policies. 2. Secured vs. Unsecured Loans Secured Loans: Backed by collateral. Example: Home loans, gold loans. Unsecured Loans: Not backed by any asset. Based on creditworthiness. Example: Personal loans, credit card debt. 3. Effectiveness of Securities Marketability: Should be easily saleable. Legal enforceability: Should be supported by valid legal documents. Value stability: Value should not fluctuate drastically. 4. Specifi...