Secured Business Finance Solutions

If you default on a secured loan, the lender will first send reminders and notices. If the default continues beyond 90 days, the account is classified as a Non-Performing Asset (NPA). The lender can then initiate recovery proceedings under the SARFAESI Act, 2002 (for banks and NBFCs), which allows them to take possession of the pledged collateral and auction it to recover the dues. Your credit score will also be severely impacted, making it difficult to avail future credit. It is always advisable to communicate with your lender early if you are facing repayment difficulties to explore restructuring options.

The loan amount in a secured loan is determined primarily by the Loan-to-Value (LTV) ratio, which is the percentage of the collateral's market value that the lender is willing to finance. For home loans, the LTV can be up to 75-90% of the property value. For gold loans, it is typically up to 75% of the gold's value as per RBI guidelines. For loan against securities, it ranges from 50-80% depending on the type of security. The final sanctioned amount also depends on the borrower's income, repayment capacity, credit score, and the lender's internal policies.

Yes, most secured loans allow prepayment or foreclosure. As per RBI guidelines, banks cannot charge prepayment or foreclosure penalties on floating-rate home loans and other floating-rate term loans taken by individual borrowers. However, for fixed-rate loans and loans taken by non-individual borrowers (companies, firms), the lender may charge a prepayment penalty typically ranging from 2-5% of the outstanding principal. It is advisable to check the prepayment terms in your loan agreement before availing the loan.

These are three forms of creating security interest in a secured loan. Mortgage is when immovable property (land, building) is offered as collateral — the property remains with the borrower but the lender has a legal charge on it. Hypothecation is when movable assets (vehicle, machinery, inventory) are offered as security — the borrower retains possession and usage of the asset. Pledge is when movable assets (gold, fixed deposits, securities) are physically handed over to the lender as security. The type of charge depends on the nature of the collateral and the loan product.

A secured loan impacts your credit score in the same way as any other loan. Timely repayment of EMIs improves your credit score over time and builds a strong credit history. Late payments, defaults, or settlement of the loan for a lesser amount will negatively impact your score. Having a secured loan with a good repayment track record demonstrates financial discipline and can improve your eligibility for future credit at better interest rates.