Secured loans are loans that are issued against collateral. Normally banks issue loans against pledges. In case the borrower is unable to repay the loan within the constraints of the loan, the bank has a right to recover the lent amount by selling the item pledged.
The loan amount given is normally less than the current market value of the secured item. Different banks set different percentages.
If a businessman needs $300,000 for investment, the bank offers a secured loan at 7% with a loan amount of not more than 75% of the secured item’s fair value. So in order to successfully approve the loan, the businessman will have to pledge an item like property that is worth at least $400,000.
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