LEND ON SECURITY Meaning and
Definition
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Lend on security refers to a financial arrangement in which a lender provides a loan to a borrower with the condition that the borrower pledges some form of collateral as security for the loan. The collateral serves as a guarantee for the lender that they will be repaid in the event of default by the borrower.
In this context, security refers to an asset or property that has value and can be used to recover the outstanding loan amount if the borrower fails to repay. Common examples of assets used as security include real estate properties, vehicles, stocks, bonds, or other valuable possessions. The lender will assess the value of the collateral and determine the loan amount based on a percentage of its estimated worth.
Lending on security provides a sense of security to the lender, as they have a legal claim over the pledged asset in the event of non-payment by the borrower. This reduces the risk for the lender and often results in more favorable loan terms, such as lower interest rates or longer repayment periods, compared to unsecured loans. However, in the case of default, the lender has the right to seize and sell the collateral to recover the owed amount.
Overall, lend on security is a lending practice that offers a mutually beneficial arrangement for both the lender and the borrower, as it allows borrowers to access funds at more affordable rates while providing lenders with a safeguard against potential losses.
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