13th Feb, 2023
Everyone wants the best interest rate when applying for a loan. The ideal way to get a lower interest rate is to add collateral to your loan; this gives you more “asking power” with a lower interest rate. However, before taking any loan, review the advantages and disadvantages of the particular type of loan so you can make an informed decision. This article has a detailed review of the pros and cons of collateral loans.
A collateral loan is a secured loan where one pledges a paid-off asset called “collateral” to get a loan against the asset presented. The value of the loan is determined by the asset itself, which can be either a house, a car, life insurance documents, or anything of high market value.
If the borrower fails to pay, then the collateral is liquified, thus reducing the risk for the lender. The borrower also gets the opportunity to get a higher loan with less interest rates, and reasonable repayment terms. Find out the advantages and disadvantages of collateral loans below:
There are many advantages of collateral loans, as listed below:
Collateral loans are easier to obtain because you don't have to worry much about your credit history. It gives you more borrowing options and lowers the lender's risk.
As the loan is secured against an assets value, if you have a defaulting or blacklisted credit score, this won't affect the success of your application
The lender wins on lower interest rates, reasonable repayment terms and a shorter loan application process. The borrower wins on secured lending.
Compared to unsecured loans, lenders are typically more prepared to offer collateral loans at a lower APR.
Collateral loans work best if you have less credit history, as they build your credit score and create a more solid profile for your investments in the future. Just make sure to make timely payments and adhere to your loan agreement terms.
The application process for collateral loans can be longer than applying for an unsecured loan, as the lender has to check the market worth of your collateral and then decide whether to give you the loan based on the assets market value. This process takes time and may vary from lender to lender.
The biggest disadvantage of collateral loans is default or missed payments. Timely payments are the best kind of payment, but if you default or miss even one of your payments, let alone several, then it can have serious consequences.
The lender can repossess and sell your asset due to defaults on payments or increasing payment terms. It is important to ensure you adhere to the loan agreement's terms and conditions.
A lot of financial institutions offer collateral loans, some go to banks, and others go to credit unions, for which you need to be a member. At the same time, some opt for car dealerships or pawnshops as a means of gaining collateral loans. However, the best of them all is Instant Cash SA.
We are a financial service provider dealing in collateral loans and more. Trusted by hundreds of valued customers and their testimonials, Instant Cash SA provides a quick and easy process to get you the instant cash you need.
We provide collateral loans and buy movable assets like cars, trucks, caravans, bikes, earthmoving equipment and more. With countless offers and the best interest rates, Instant Cash SA helps give our clients excellent service and financial freedom.
Contact us today to help find the solution to all your collateral loan needs. Visit our website for more details.