Credit transactions are always based on trust. Nevertheless, the security of the lent capital must be guaranteed as best as possible. Loans with collateral are always welcome when the loan amounts exceed the “normal” trust level. With average income and a solid lifestyle, lenders only require additional security if the normal framework of trust is exceeded. This is the case from around 5000 USD.

Loans with collateral – strengthen confidence in the ability to repay

Loans with collateral - strengthen confidence in the ability to repay

Loans with collateral have little to do with “bailing out” a borrower. The bank clerks only manage other people’s money. Your job is to invest the money as profitably and safely as possible. High risks mean higher profits, but at the same time the risk of credit default increases. The USD and banking crisis of the past few years has shown how dramatically systematic misjudgments can have an impact.

As a consequence of this, the clerks have had much tighter frameworks since then. “Trust is good, security is better”. Collateral must be requested more often than before. Exact figures from which sum collateral is to be requested cannot be generalized. Everyone has a different credit line. This depends on age, profession, income situation and previous payment history. For the “normal Otto consumer”, the limit can be set at around $ 5000 total debt. This roughly corresponds to the maximum size of a small loan with a simplified credit check.

What types of collateral can be offered?

What types of collateral can be offered?

In principle, all tangible assets can be used as collateral. For larger loan amounts, for example, the entry in the land register can secure a mortgage loan. When buying a vehicle, the vehicle letter is deposited as security with the lending bank. Loans with collateral, on the smallest scale, come from the pawnshop. Here even the deposit – the security – is the only guarantee of credit protection. If the borrower does not pay, the deposit will be auctioned.

Not only property collateral can contribute to securing loans. Other possible collateral would be savings books, life insurance and contracts from which payment claims can be assigned. The most convenient form of credit protection is to guarantee or join a solvent fellow human being. If the debtor is unable to pay, he becomes obliged to pay. Important for the acceptance of the guarantor are his income and personal creditworthiness.

What are the advantages and disadvantages of securing loans?

What are the advantages and disadvantages of securing loans?

The advantages for the lender can be summarized in the greater capital security. A disadvantage is the bureaucratic effort that has to be dealt with in the event of the collateral being exploited.

The borrower can increase his personal creditworthiness by providing collateral. As a result, more favorable interest rates or higher loan amounts are possible. If the security consists of a life insurance policy, for example, then more convenient repayment procedures can open up. Loans with collateral where life insurance has been used can be taken out as “due date” loans. So it is possible to pay only the interest during the term. The loan is only redeemed when the life insurance becomes due.

Leave a comment

Your email address will not be published. Required fields are marked *