An individual’s personal assets and possessions may be used as a collateral for a secured loan. These are real estate property like a house and lot, cars, and other vehicles; jewelry, paintings, stamps and other collectibles; securities, money in the bank. Big business corporations have assets that can be used to secure more capitalization or to expand existing projects or start new ventures. These possessions and assets can likewise be used as collateral in securing loans.
What Are Collaterals?
Collateral is a personal or corporate asset that may be used to guarantee the payment of a loan. The borrowing person or corporation pledges a specific, legitimate, valuable asset to a lender. If the borrower defaults on his payment for the loan, the lender can take possession of the said collateral. The lender can keep the asset or property or sell it to cover his losses. Because there is a collateral that ensures payment, the loan is also called a secured loan. Loans that are obtained without collateral are usually character loans or unsecured loans.
The Higher The Value Of The Collaterals, The Bigger The Loan Amount
The amount of loan is determined by the value of the collateral. The lender makes sure that the amount of the loan will be covered by the cost of collateral should it become necessary to sell it.
What Assets Are Acceptable Collaterals To Lending Institutions?
The list of assets that can be used as collateral is endless. Any property or possession acceptable to the lender may be used as collateral. Assets acceptable as collateral from individuals are houses and lots, vehicles, jewelry, stocks, life insurance policies and other personal possessions of value.
Companies applying for large commercial loans put up as collateral real estate properties like office buildings and hotels, shopping centers, factories, and warehouses. Companies also offer huge resources as collateral such as coal, gas, and oil. Valuable machinery and factory equipment may also come in the package.
Inventory can be used as collateral in asset-based financing.
How The Assets Are Used As Collaterals
- House And Lot For A Home Equity Loan: A house and lot can be used as collateral in securing a home equity loan. It can also be a line of credit. What is a line of credit? It is a pool of money available to borrow from.
- Cars And Other Vehicles For Car Title Loan: Car Title Loans are used for cars completely-owned and fully paid by the owner /borrower. His car serves as collateral in case of failure to pay the loan.
- Cash Title Loan: Cash title loans are likewise short term loans where a title to an asset is used as collateral to get cash. The most common example of a cash title loan collateral is a car title.
It is better to know the specifics before even thinking of putting up a possession as collateral. And better yet, make sure payments are solicitously being made in order not to lose valuables that have been hard-earned, or handed down by previous generations.