All You Need To Know About Collateral Loans

When applying for a personal or business loan from a bank, some sort of collateral is required as a necessary part of the approval process. Collateral is a thing of value that you own or control and agree to hand over to the bank in the event you default on your loan payment. The lender has the right to seize the collateral and resell it if you fail to pay the loan payment even after repeated reminders. Such types of loans are known as secured loans. It is important to understand how collaterals work and the types of assets that serve as collateral to decide whether it is the right choice for you or not.                 

Collateral serves to reduce the risk against the loan. This is the reason why lenders don’t lend money that is of exact worth to the collateral. Most lenders don’t even consider the collateral that’s of the lesser or same value to the loan principal amount. How much collateral is required is calculated by the banks through the loan-to-value (LTV) ratio. Mostly, lenders agree for an amount that is not less than 70 or 80 percent of the collateral value.                                

Each bank has its own requirement in terms of what they accept as collateral. Below mentioned are the most common types of collaterals that help secure a loan-

Real Property- Vehicles, land, buildings, etc. you own act as excellent collaterals that are also easy to sell and rarely depreciate in value.               

Valuables- Items such as antiques and gold jewelry can serve as collaterals, the value of which is again going to rise with time.                                    

Savings- Sometimes, a savings account can be used as collateral wherein the lender can take the funds as compensation. The savings are secured in a certificate of deposit account so that the borrower has no access to the funds until the loan is paid off.   

Stocks, Bonds and Other Investments- If the economy is strong, most investments are treated similar to cash. Depending on the market situation, lenders can offer 100 percent LTV. 

A Blanket Lien- All the assets controlled by the borrower are covered under the blanket lien. This gives the lenders an option to consider anything and everything to get their money back. This must be considered as the last option.        

For anyone possessing valuables or items mentioned above, offering them as collaterals is a good option to attain the liquidity that they need. If you are taking a loan against gold, it is crucial to go with the best gold loan company in India and talk to an expert who can walk you through all the options and help you pick the collateral that best serves your needs.

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