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Thursday, 21 June 2018
Five things you can use as bank collateral
When people cannot qualify for an unsecured personal loan, they opt for a secured loan. Sometimes it is more beneficial to choose a secured loan. That way, you can easily get approved when trying to take out a loan. Since you do not have any collateral as a guarantee that you will pay back the loan.
Secured loans are also called collateral loans as they are backed by the borrower’s asset. This asset acts as a collateral that the lender can take from you when you can no longer pay for your loan. So, what can you actually use as a collateral for a secured loan plan?
Here are some assets you may have that can be accepted as a collateral:
A house: If you own a property, then you are good to go. A home or a real estate property is one of the most common assets used as collateral by people. For instance, mortgages are used as loans secured by the property. That is why a lender can take possession of a mortgaged property whose owner has defaulted on a mortgage. But the mortgage is not the only secured loan that people can use as a collateral – home equity loan is a type of personal loan secured by the home’s equity.
A car: A car is another usual type of secured loan collateral. About every car loans that are used to purchase a car are secured by the vehicle’s value. But if you own a car, vehicle, or even a boat, you can use that as a collateral for a secured cash loan.
A savings account: If you are an existing customer at a bank you want to loan a cash with, the bank may offer you a savings-secured or certificate-secured loan. This allows you to keep your liquid cash in a deposit account, usually a savings account or certificate of deposit, while also getting out a cash to fund something you need. The best thing about this loan is that borrowers can frequently get interest in their deposits, while using it as a collateral for a secured loan.
Investments: Investments and stocks are also assets that can be used as a collateral. Investments that are used as loans are often called securities-based loans or stock-based loans. These are often offered by private banks (especially if you have investments in this company) or brokerages. These are the same with other collateral loans. The debtor’s investments or stock holdings are used as collateral against the loan. Most of the time, the bank will extend credit up to the full amount of the investment’s value.
Future paycheques: I bet you didn’t know you can use your future income to secure a cash advance loan. This means that you can borrow money in advance, but you have to pay it back as soon as possible when you get your paycheque. This is also different from payday loans as it costs higher APRs, and is actually more costly to borrow.
When getting a secured loan make sure to prepare for the right collateral needed by your chosen bank company. It is either you make it or break it, that is why you have to keep in mind the acceptable asset that can be used as a collateral by different banks.
Taking out a cash loan can be a financial rescue or put you on a debt. Make smart decisions.
Why collateral is important
When you are ready to apply for a loan, the lender likes to know that you have a little skin in the game. By having something at stake besides the retention of the item you borrow money to buy, you not only give the financial institution assurance of your willingness to pay back a loan, but you also help minimise the lender’s risk by providing something of value to back the loan.
Collateral is an item of value that you own and pledge to back a loan that you take. If you should default on the loan, the lender can then take ownership of the collateral in order to offset its losses, according to www.northshorebank.com.
When you put something up for collateral, it must have a value in an amount that is comparable to the amount of your loan. In other words, if you are taking out a loan for N110,000, collateral worth N1,000 will not be very convincing to a financial institution. In addition to value, there must be sufficient equity in the item that you pledge. If you owe money to another lender on the item you pledge as collateral, then it may not be accepted, because it is not technically yours to promise in the event of non-payment.
When buying a home, the collateral is generally the underlying property and its equity. When you make a down payment of at least 20 per cent, you create equity immediately that works to offset the lender’s risk. And each month you make a payment, you pay a little bit of the principal back and create even more equity. If you are unable to make a down payment, you may instead be asked to pay for private mortgage insurance, which offsets the lender’s risk in a different manner.
How collateral helps you
Collateral covers a multitude of sins. If you have a low credit score, you might normally be declined a loan, but with collateral, your lender might be more likely to take that risk because the lender can take ownership of the asset pledged and thus reduce the risk it takes on by loaning to you.
Rainbowgist
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