Secured Personal Loans
Those who have ever taken a loan know that this is always a risk. Even a good stable job with a high income cannot guarantee that you will be able to pay a loan in two, three, ten years. The banks are also at risk – in the end, they give their money, and it is not surprising that they want to have guarantees that these funds will be returned to them. And the larger the amount, the more important the role of such an “airbag”. This very insurance becomes collateral for the loan – a number of conditions that give the lender confidence that the debt will be repaid in any case.
Of course, collateral is not always needed. There are also unsecured loans, their amounts are usually limited to $5000 rubles, although there are cases when their amount is higher. But there are many nuances: a high interest rate, a proof of high income, good credit history. And there should be high competition among banks so that they have an incentive to lure borrowers with interesting offers. Although, the main condition is the consumer’s income and work experience in last place.
Type of loan security
What property can serve as collateral?
- Real estate. The most accessible and understandable example is a mortgage. Purchased housing usually becomes bank insurance. In other cases, it is also possible to make an apartment a collateral (for example, if you start a business, you need funds for its development and you take a loan for that). The loan amount will be up to 80% of the value of the property;
- Motor transport. The situation is usually similar to a mortgage: when you buy a new car, the car becomes bank insurance against non-payment. But banks do not like to work with used vehicles, usually pawnshops deal with these issues. But be prepared that they will give a loan for a short period, the percentage can reach 40, and the amount is not more than 60% of the car value;
- Securities. The bank may accept bills, bonds, shares of the borrower as collateral. With this security, you can count on 70-80% of the value of assets;
- Precious metals. These are measured bullion and investment coins. Their value grows over the years, especially among collectors. Such collateral is rare, but the degree of liquidity is quite high, it is easy to sell. Jewelry made of precious metals is also classified in this category, but usually pawnshops are dealing with them, so the cost of valuation is low, which cannot be said about interest rates.
When does the collateral end?
As a rule, the collateral ends when the loan is fully repaid. But there are other situations:
- The mortgagor’s requirement. For example, if the bank violates its obligations (changes the interest rate, loan term and amount of payments without notice and consent of the borrower);
- The spoilage of the pledged thing. The car was stolen, a house burned down, a precious coin was lost. Typically, the bank asks to restore or replace the collateral, but the borrower does not always have such an opportunity;
- Sale of mortgaged property at auction. If the borrower does not repay the loan, then his/her property is sold;
- Seizure of property, as its owner is another person. This is either a fraud when the property always belonged to another person and the bank found it out. Or a situation when property was seized for a crime.
Often, some goods can be replaced by others, but provided that their value is not less than that indicated in the contract.
A surety is a person or two who are also responsible for a loan. The bank turns to him / her / them with a request to pay off the debt if the main borrower has overdue the next payment. In general, the guarantor can pay up to 100% of the loan, and in this case he or she has the full right to the borrower’s property purchased with credit funds.
Banks willingly work with guarantors (and the higher their salary, the higher the chance of loan approval), because the probability that two or more people who have a loan at the same time will be left without work and will not be able to pay the debt is much less than the probability that one person will be left without money. Therefore, banks even lower rates: usually the difference between the loan rate without a surety and with a surety is 5%.