Tips For Understanding And Getting The Most Out Of Collateral Loans

18 January 2016
 Categories: , Blog


If you need some money now, then one of your options is to get a collateral loan. To help you decide whether a collateral loan is right for you, here are some things that you should know:

What is a collateral loan?

In a collateral loan, you give up a valuable asset that you own as collateral. In essence, that asset will be used as an assurance that you will return the loan when it comes time to pay. If you do not pay the loan back on time, then the lender has the right to assume possession of your asset, and sometimes even sell it. Depending on the terms of your loan, you may have a grace period after the payment is due before your collateral is actually taken. Failing to pay the loan on time will also often result in increased interest rates and charges.

What can be used as collateral?

In almost every case, collateral loan lenders will want assets that are worth more than the loan. This will depend largely on the size of the loan, with small loans being covered by jewelry or other personal items, and larger loans requiring a car or large equipment as collateral. If you are looking for a collateral loan for business purposes, then the scale can be significantly larger, with some future profits or insurance policies taken as collateral.

What are the benefits of collateral loans?

The main benefit of a collateral loan is that it is easy to acquire and tends to have low interest rates. Both of these stem from the fact that you are putting up collateral, which basically puts the lender in a win-win situation. Either you pay the loan back on time and they get paid the interest, or you fail to pay and they get an asset that is likely more valuable than the loan was. 

As far as ease of acquisition goes, collateral loans tend to have lower credit score requirements than similar loans. While other loans heavily rely on credit score to judge the trustworthiness of the client and the odds that the loan will be paid back, collateral loans do not, thanks to the usage of collateral. For the same reason, collateral loans can often charge lower interest than similar loans, since they have an increased likelihood of being paid back.

As long as you pay back the loan on time, a collateral loan can be a much more effective option than other types of small loans, particularly if you have poor credit. 

Contact a company like Sol's Jewelry & Loan if you're ready to consider a collateral loan.