What are the attributes of good securities for a loan?

Answer 1

Security is not the primary source of insurance lending instititutions use when giving out credit. Credit is advanced to a borrower firstly based on the soundness of the investment in which the money is being put and the capability of the borrower to execute or implement the investment plan /project and his willingness to meet his obligations. these should be the primary source of security, however lending institutions need a fall back plan in the event that the borrower fails to execute the plan. this is were security comes into play. the lending institution will liquidate the security when the borrower defaults. the following are the attributes of a good security:

1. Easy to Value: The market value of the security should be easy to determine in the market. the value of house provided as security should be easily determined. further the value of the security should be stable over the period and not fluctuate.

2. Easy to Realise: the security should also be marketable or easily to sale. the lending institution should be able to dispose of the security without incurring additional cost. the security should also be easy to liquidate, concert to cash in little time without loss of value.

3. Easy to take: a good security should enable the lending institution to acquire an interest or charge over it without delay and additional costs. there should be no legal encumbrances , disputes on the security. the tile deed or ownership of the security should be in favour of the borrower and there should be no outstanding dispute over it. Other components of easy to take should be ease to own legal or take physically.

Answer 2

ii. Should a bank always insist on having security when lending to a customer? Explain your position. [

Answer 3

Easy to take.

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