Collateral loans, what are they? A collateral loan is simply borrowing money, while pledging something valuable that you already own as collateral. Collateral refers to assets that you are willing to put up to secure credit, such as a small business loan, a personal loan or a car loan. Your house (if you own it outright), your car, property, or anything of great monetary value represent examples of tangible assets that you may be able to use as collateral to secure credit.
Loans that use tangible assets as collateral are called secured loans (as opposed to unsecured loans). The advantage of secured collateral loans is that they often have lower interest rates than unsecured loans. One potential problem with collateral is that if you are unable to pay off your loan as scheduled, the security asset(s) you used as collateral will be sold, and the money raised by selling the assets will be used to repay the loan. In addition, if you have credit report challenges, applying for collateral loans greatly improves your chances for approval. Collateral loans offer borrowers loads of amazing benefits. Below are some of them:
The first benefit to borrowers with collateral loans is greater availability of loans. Lenders do not make unsecured loans as often, and many types of loans require collateral. If borrowers are willing to accept a loan for collateral, their loan possibilities have a much greater range. Many times your lender will consider you less of a risk if you are willing to put up something that means a lot to you as collateral. The risk factor is one of the reasons why collateral loans are so much easier to qualify for compared to other traditional unsecured loan options. You are 100 percent guaranteed to get loan approval if you make an application for this type of loan.
Even Those with the Lowest Credit Score Qualify
If you are in a crisis and need money in the soonest possible time, but you have a bad credit history – collateral loans are easily the most ideal loan type for you. While many lenders will check a borrower’s credit score and history, for a collateral loan they care less if you have a poor credit record or if you are blacklisted, have judgement’s or defaults against your name, or are in arrears on your payments. As long as there is no question about the value of the collateral, many lenders will not enforce restrictive rules regarding the lowest credit score that can qualify for personal collateral loans.
Employment is Not a Requirement
In a routine traditional loan, lenders want a borrower to have a job and to have held their job for several months at the least. But a lost job could be the reason that triggered the need for a loan in the first place, and lenders will be more forgiving if they are enjoying the general comfort of a collateral loan.
Collateral Determines Loan Value
Traditional loans often have capped limits, which reflect the general risk of handling any kind of personal unsecured loan, as opposed to mortgages or refinancing or other loan products that are tied to the value of a piece of property. But collateral loans are often available for greater amounts. Often, the limit is proportional to the value of the security asset being held as collateral, although most lenders might only recognize 50% of your security asset for a collateral loan. That way, they improve their chances of getting all their money back in case the asset loses its value or the borrower defaults on payments.
Pay Lower Interest Rates
The interest rates on collateral loans are usually lower than that of traditional loans. The reason for the lower interest rate for collateral loans is that lenders are in a much safer situation. If you pay off the loan, the lender has the amount loaned out plus interest. If you can’t pay off the loan, the lender takes full ownership of the collateral. In lending, the safer the transaction, the lower the interest rate, and if you take a loan with a fixed rate you always know how much you will be paying every month. A variable interest rate loan means that your payment could go up and down as the rates move. That could make it more difficult to pay if the interest rate is higher than you expected.
If you are blacklisted and are considering the idea of taking out a collateral loan, don’t hesitate to contact XCELSIOR Loans today and reap the many benefits of our easy and flexible low interest rate collateral loans.