Whenever I hear the word Collateral, various images of Tom Cruise starrer movie come to my mind. You have seen that movie, right? Even if you havenât seen that movie, I will just quickly establish the connection between the essence of that movie and how the collateral works in the real world.
In the movie, Tom Cruise had abducted (sort of) Taxi driverâs girlfriend and he put up a condition that he wonât let her free until the Taxi driver drove him to various places all through the night so that he could assassin people on his list.
The taxi driver had to submit to the coercion of Tom Cruise lest he would have killed his girlfriend. It was as if a precious thing of the taxi driver was kept as a security (unwillingly though) and the Taxi driver had to submit to the diktats of Mr. Cruise or else he would never ever get to see his girlfriend.
What is a collateral loan? In the real world, Collateral means something kept as a security with the banks against the loan amount borrowed. Non-performance of the contract, failure to pay to be precise, means the seizure of the collateral.
Read more:Â 4 Ways Young Borrowers can Get Personal Loans
Such type of loans are also called secured loans and are easy to get because the lenders have a sort of indemnity that they can sell the asset and realize the collateralâs value.
Examples of secured loans include mortgages or auto loans, where your home or car serves as the collateral. You can also get a secured personal loan, which can be used for a variety of reasons, such as paying for a big-ticket item or consolidating credit card debt.
For instance, Mortgages are secured loans where the house serves as the collateral. There are many secured personal loans available in the market, typically which are concerned with credit card debt consolidation.
Broadly, most financial assets which can be liquated at the go are accepted as Collateral. However various types of loans have various prerequisites in the form of Collateral.Â Personal loan with collateral: In high-value personal loans, possessions such as jewelry and ancient artifacts are accepted as collateral.
In the case of manufacturing units, machinery is counted as collateral and in terms of businesses; bonds serve as collateral (more often than not).
Collateral often serves as the lender of the last to people with low credit score because it exhibits the consumerâs determination to pay back the loan.
Sometimes, only sometimes, collateral also translates to getting cheaper loans and no direct correlation can be established because factors such as payment history, bankruptcy etc are also calculated.
Lenders want to be financially secure when they are lending you money without securing anything in return, there is a lot risk involved. In order to mitigate this, risk lenders soak in collaterals.
In particular, business loan providers who got to have something in their arsenal should your boat get caught in shallow waters.
If your small business hasnât made its presence count, then it could be hard for lenders to establish trust and assume that you would be paying back the loan in time. Pledging an asset which is equivalent to the cost of that loan curbs the risk for lenders.
Lenders price your asset for a considerably less amount than their present market worth. For instance, if you are keeping your portfolio as collateral then lenders will value it around 50% of the value of investments lest they lose market value amid the term of your loan period. When you mortgage out your house, lenders generally let you borrow up to 80% of the value of your mortgage.
You see that there are many lenders in the market, but we have handpicked 3 loan providers because they stood out from the lot. They are:-
They barely turn down any loan application. They are always ready to estimate your collateral fairly which often translates to lower APR.
The club is the best place to find a loan so the bar is where you wonât goâŚ err cheesy, isnât it?Â No one has got a simpler and more transparent loan approval process. Period
Best for those businesses who havenât taken the fight yet but are very promising. Focussed on the working capital needs, Credibly goes the extra mile to help new businesses in ascending to the heights.
Why would you put your Grannyâs jewelry or your house on the line when you can hustle without it?Â Why go for personal loans with collateral?Â There are unsecured personal loans galore in the market.
The application process is almost the same except it saves you the pains of getting your collateral approved and provide shreds of evidence to prove our ownership.
You can easily get an unsecured personal loan at competitive rates with:
Itâs not that a personal loan with collateralÂ is not a good option for personal loan seekers. It has got its pros and cons and you have to weigh your choices and other crucial factors have to be considered before taking the final call.
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