4th Jul, 2023
When you ask a financial institution or a bank for a loan, they provide two options: secured and unsecured loans. To secure the loan, lenders want you to back them with collateral that holds monetary value, such as jewellery, vehicles, equipment, machinery, and much more. Lenders do it to reduce the risk on their side while shifting it to you.
However, collateral loans have several layers and can be confusing for most. Therefore, we have compiled this guide to help you understand what collateral is and what you can use as collateral.
Collateral is an asset that you can use to get secured loans from different lenders. If you want a loan, the lender will look at your creditworthiness. If it's unsatisfactory, they'll ask to put something as collateral that can range from your car to your jewellery.
Lenders ask for collateral because they want to secure their loans if the borrower cannot return the amount on time. If the borrower doesn't return it, the lender can seize the asset pledged as collateral.
Collateral of several kinds, and they have their own benefits and disadvantages. Moreover, different lenders have different requirements too.
Although fintech lenders don't usually accept cash as collateral, many other financial institutions and banks do. It is simple collateral, so getting a loan against it should be fine if you have some money in your bank account.
Business equipment is much safer collateral than pledging your family home, especially if you're in the manufacturing or construction sector. One downside of this strategy is that business equipment loses its value over time due to wear and tear, so you might not be able to secure a large loan against it.
You get a collateral loan because you need money for a pressing need. However, you shouldn't rush the process and should consider everything calmly before signing on the dotted line. Here are a few things to think about before entering into a loan agreement:
Understand whether the loan agreement has a fixed interest rate or floating free rates. A selected free rate doesn't change throughout the loan, while a floating free rate adds some percentage to the benchmark rates.
It is the interest rate you pay when you fail to give back the debt within the intended period.
Ensure that the agreement allows you to pay your loan earlier than the agreed period.
A committed collateral loan means the lender is contractually obliged to give a loan to the borrower once certain conditions precedents (CPs) have been met. However, CPs are only necessary if the loan is committed.
Need an Instant collateral loan? Instant Cash SA is here to help both companies and individuals through our quick and easy processes. You can get a collateral loan from us at unbeatable interest rates and resolve your cash flow problem immediately.
We buy moveable assets like vehicles, trucks, trailers, caravans, and plant equipment. We feel pride in keeping the clients at the centre, being dependable with our services, and exercising financial prudence. So, do not wait and contact us today!