Getting the Best from Collateral Loans

Getting a loan these days involves a lot more than just finding the cheapest options available. It also involves doing some research to find the best options to suit your needs.

Personal loans are often offered in two main ways:

  • Unsecured loans
  • Secured loans.

Unsecured loans are often slightly more difficult to qualify for and often carry a higher interest rate. Secured loans, on the other hand, require some form of collateral.

What is collateral?

Collateral refers to assets that you are willing to put up in order to be able to secure credit.

Collateral loans involve the borrowing of money, while pledging something valuable that you already own as collateral.

Some lenders accept cars, jewellery or other items of value as collateral. If you are buying a home through a bank, your home is likely to serve as collateral.

More about collateral loans:

These types of loans are also known as secured loans and they often have lower interest rates. This is mainly because the collateral is used to offset the risk of the loan. For lenders, the risk of lending to you is lowered by the fact that they are entitled to sell the asset if you default on repaymnets.

Often easier to qualify for, collateral loans may be your best credit option if you have a poor credit record.

When applying for collateral loans, employment isn’t always a prerequisite. The assets that you offer as collateral will determine the loan amount for which you qualify. In some cases, lenders may only recognise 50% of the value of your asset.

If you are unable to pay the loan back, your collateral will be sold and the money raised by selling the assets will be used to repay the loan.