Do you need financial assistance but is wondering which of your properties can be used as collateral for loan? Then here is all the information you’ll need.
Certain types of loans require that borrowers provide some form of collateral before they can be approved for a loan. But you can’t just use anything of your choice as collateral. There are a few things lenders accept as collateral for loan and as such borrowers must know them before applying for a loan from them.
In this article, I’ll be listing some of the things you can use as collateral for a loan bearing in mind that whatever you can use depends on the type of secured loan you’re going in for.
What is a Collateral?
A collateral is something, usually property/asset that lenders use as a form of security against certain loans. Such loans are referred to as ‘Secured Loans’ because they are secured by the collateral.
What this means is that, the lender can possess/ repossess the property or asset which was used as a form of security against the loan in case the borrower fails to pay back the loan as agreed in the loan agreement form.
Because of the presence of a collateral, such loans are seen to be less risky for lenders hence usually have lower interest rates or APRs as compared to unsecured loans. This is because unsecured loans do not require any form of collateral hence the risk level for lenders is higher because there is nothing for them to rely on in case the borrower defaults.
As mentioned earlier, you can’t just use anything as collateral. Usually, the type of asset you can use as collateral for loan depends on what type of loan you’re going in for.
For example, a mortgage will require that you use the house as collateral whereas a car loan will require that you use your car. In that case the lender can possess your house and car respectively in case you fail to pay back.
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Assets That Can Be Used As Collateral For Loan
Here are the list of things that can be used as collateral for loan bearing that it depends on the type of loan you’re going in for;
- Insurance policies
- Trademarks Royalty streams
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Not all loans require the use of a collateral. So before going for a loan, find out if it’s a secured loan or not and examine yourself if you are ready to go for a collateral loan.
It has its own pros and downsides though, so its up to you to decide. At times you may have no other option than to go for it because of the nature of the loan such as auto loans and mortgages.
A collateral loan helps you to qualify for a higher amount of loan than you would have got without a collateral whiles also getting you reduced interest rates. The downsides to it also is that, your lender may be left with no option than to repossess your asset if you default.
So always explore your options and be sure you really want to go for a collateral loan before putting your signature on the dotted lines.