What is Collateral?

Usually borrowing funds often requires the designation of collateral on the part of the recipient of the loan. Assets that have been pledged by the recipient as security on the value of the loan is referred to as Collateral.

If there are such circumstances that make it impossible for the recipient to repay the loan, then in that case ownership of the collateral is transferred to the entity that issued the loan in order to settle the debt. Here I have given some information about the different types of assets that may be used as collateral in different situations.

realestate purchases

Real estate purchases

One of the most common examples of a collateral loan is with real estate purchases. In several cases, the property that is being purchased with the mortgage is held for the duration of the loan as collateral . Essentially, the financial institution that has given the loan retains interest in the property until the mortgage is paid in full by the homeowner.

As long as there is an outstanding balance on the loan, the mortgage holder must approve any changes in ownership of the property. The mortgage holder considers the business arrangement to be concluded and releases all claims to the property once the debt obligation is discharged.

Newly purchased vehicle as collateral

In like manner, a newly purchased vehicle can be used as collateral on the loan used to purchase the car. By this finance company is given a right to take possession of the vehicle This if the owner defaults on the loan for any reason. Generally, companies that finance car loans will only finance according to the current market value of the vehicle. This helps to make sure that the collateral held on the property is sufficient enough to recoup any losses that result from the default.


Other assets as collateral

On cash loans other assets can also be used as collateral. For instance, jewelry and securities that have a certified value, until the loan is repaid may be held as collateral. In some cases, rare antiques may also be accepted as collateral. It merely depends on the circumstances, just about any asset that is clearly owned by an individual can be used as collateral, as long as the entity that makes the loan is accepting the asset as being sufficient to guarantee the loan amount.

Usually providing collateral  does not mean surrendering possession of the asset that is used as collateral. Despite of that, the borrower is covenanting to retain control of the asset for as long as it takes to repay the loan. This helps to provide a surety to the lender that the investment made in the borrower will be recouped, either through the systematic repayment of the loan, or by taking possession of the collateral.

You might also like

Home Improvement Loan Adds Value To Your Dream House Everyone wishes to make improvements in their homes but for low income people this becomes a dream. Many...
Bad Credit Loans for Unemployed People need money on immediate basis in the event of becoming jobless. This is because they have to pay...
How Would you Define Bank Credit? The amount of funds that an individual or a business may be able to borrow from one or more lending institutions...
What do you understand by the term Repo Rate? The difference between the repurchase and sale prices associated with a given repossession transaction...
How to Obtain a Micro Business Loan? Te get such loans can be very easy provided that proper guidance is available for each step to be followed....
Debt Consolidation Companies

People who liked this Post also read

  • Where to Get No Credit Check Credit Cards?
    If you have become default on your loan agreement due to financial problems then you can take out bad credit rating credit cards. These credit cards would help you to raise your credit score and meet your living expenses....
  • Bad Credit Loans for Unemployed
    People who are jobless need a remarkable amount of cash in order to meet their living expenses. There are various options by which these unemployed people can find good amount of money to fullfill temporary needs, but they should not forget that these loa...
  • Low Credit Score? Not a Worry Anymore
    Guaranteed Credit cards are offered to those with a very poor credit rating. The reason for this is that their credit score does not make them eligible to qualify for any type of loan. Therefore such a card would help them to make their daily transactions...
  • Credit Cards with Poor Credit Score
    Most people are often worried about getting new credit cards when they have a poor credit score. This is true because if you do not clear your previous dues, you are not extended any more credit. However, secured and unsecured credit companies might help ...
  • Advantage And Disadvantage Of Debt Consolidation Mortgage Loans
    Mortgage loan refinance and debt consolidation are two effective options for those who are not able to pay off outstanding debts and unpaid bills. Borrowers can easily pay off their huge debts and reshape their finances....

is an experienced IT Consultant turned Blogger, Interested in Technology, Personal Finance, Humans and Life...You and discover more about him by following RMak on twitter.

Leave a Reply

© 2011 Loan Mortgage Credit!. All rights reserved.