The loans which a banker grants to his customers may be classified in to secured and unsecured loans. Unsecured loans are so called because they are secured only by the promissory notes signed by the customers and not secured by any other additional security. In granting personal loans, therefore, a banker first satisfy himself with regard to the financial stability and integrity of the borrower by examining his balance sheet.
Where the personal security of the borrower is considered inadequate, a banker may require him to furnish some additional security. This may take the form of a guarantee by a third person or a deposit of tangible securities. Such securities as are deposited by way of security for the loan are known as Collaterals. The most common collaterals are discussed above.
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