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Collateral Loans and What You Need to Know About Them

Collateral Loans and What You Need to Know About Them

When you need money for any expenses, you may be tempted to use a credit card. However, this credit card may bring some disadvantages for the users, especially if you don’t know how to manage your money wisely. It is a good idea for you to consider using the collateral loan to pay any of your needs.

There are some popular financial institutions that are offering collateral loans for their customers. Before you decide to choose a suitable loan for yourself, you may want to take a look at this article. In this article, we are going to discuss how you can get benefits from this type of loan.

Sean Martin D. Plantado, head of the customer service at Digido.ph, notes that the Philippine financial market has many offers from online companies that allow you to get a loan without collateral for small amounts.

What Are Collateral Loans?

Most banks or financial institutions are going to offer two types of loans. They are unsecured and secured loans. You can secure the loan by using something that has significant value, such as a car or house. This asset can be called collateral. This asset can be used to protect the banks or financial institutions when you cannot continue paying off your debt.

With a secured loan, the lender is allowed to take possession of your asset when you put this asset as collateral. This situation will occur when you are unable to pay the payment of your loan. It is easier for you to get your secured loan application approved. This secured loan is also less expensive than the other unsecured loans. Collateral loans are suitable for you who need short-term liquidity, but you need to have your car, house, or the other assets for getting this secured loan.

Another type of loan is the unsecured loan. This loan doesn’t require you to put any collateral to back your loan. Different banks and institutions may have different policies in offering both types of loans. You can contact some financial institutions to take a look at their available loans and their offers.

Common Types of Collateral Loans

a. Mortgage. It is one of the most common types of secured loans. This home loan is backed by the real estate or building that you are financing. When you miss payments, the home loan can go into default. In this case, the lender can foreclose on your home and sell your asset to recoup the losses.

b. Home equity loan. It is pretty similar to a mortgage. However, the loan is secured by your home’s equity. It can be valued by the difference between the home’s current value and also the total amount owed on the mortgage. This loan is commonly known as a second mortgage. It allows you to borrow against your equity.

c. Vehicle loan. When you want to take a loan to finance a truck, car, boat, motorcycle, and also private jet, you can use this loan. This loan is secured by the vehicle. Failing to pay back your loan can result in getting your vehicle repossessed.

d. Secured personal loan. Some people choose to use some of their assets to get this personal loan. There are several assets that you can use to take the personal loan with collateral, for example, stocks, bonds, collectibles, jewelry, cash, etc.

Pros and Cons of Collateral Loans

Pros

+ You will have a higher chance of getting approved. Securing a loan with collateral will help you get your application approved easily.

+ You may be qualified for a larger loan. Many banks and financial institutions are ready to give you a larger loan limit when you put your asset as collateral.

+ It will provide short-term liquidity. You don’t have to sell your home or your car when you want to get instant cash. This collateral loan can give you short-term liquidity for any of your needs.

Cons

– You can lose your collateral when you cannot pay back the loan. This is the biggest risk that you are going to have when you fail to repay the loan.

– It requires you to have a valuable thing as your collateral. You need to have something valuable as your asset when you want to put it as collateral.

See Also

What Can You Use as Collateral?

The easier the asset is to value and be turned into cash, the better will be. There are a lot of different things that you can use as collateral. It all depends on the lender’s requirements. Different banks or financial institutions may have their own requirements for the collateral. Some examples that you can use as collateral are your car, house, saving account, certificate of deposit, jewelry, and any other valuable asset.

Where to Find Collateral Loans

When you look around yourself, you can find a lot of institutions that are offering collateral loans. They have different terms and interest rates for the customers. Here are some financial institutions that are ready to offer collateral loans for you.

National Banks. Large banks may offer a lot of different types of loans, including collateral loans. It is a good idea for you to apply at the bank where you are already a customer, so you can increase your chance of getting your loan approved.

Community Banks. Smaller local banks can work with some local customers. They usually have more competitive terms on loans and deposits. You can take a look at some banks to see their offers and their rates.

Credit Unions. Credit unions are actually non-profit financial co-ops that are also owned by their members.

Online lenders. Today, you can find a lot of online banks that can provide access to collateral loans for their customers. They usually have a lower rate than the regular traditional banks.

Collateral loans come with certain risks that you need to know. When you are unable to pay the loans, you can lose the assets that you use for securing the loan. However, if you have a solid and good financial management system, this collateral loan can be well worth it. It is recommended for you to contact some banks and institutions, so you can compare their policies and requirements before you take the best collateral loans for your needs. 

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