5 Types Of Collateral That Can Be Used To Get You A Loan For Your Car - Fast Action Finance - Fast Action Finance
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5 Types Of Collateral That Can Be Used To Get You A Loan For Your Car – Fast Action Finance

Do you need to borrow money from your lender so that you can purchase a vehicle? Consider borrowing a secured loan. In this type of loan, you will be required to give collateral in form of an asset, guaranteeing that you will be able to repay the debt. It also gives your lender the power to repossess the collateral provided in case of default, so that he can sell it and recover the proceeds hence avoid losses. There are many types of collateral that you can use in securing a car loan.

The car you are buying

This is how it works. The borrower seeks a certain amount of money from the lender enough to finance the purchase of the car. After you have obtained the money and bought the car, your lender holds on to the title of the car as collateral for the loan. You are required to make the payment in predetermined instalments for a period of time until you clear the principal amount (which is equivalent to the car loan) and the interest charged on the loan.

Meanwhile, you are allowed to use the car during the loan period. You are required to bear all the costs associated with the car – taxes, insurance and maintenance costs – and maintain it in a proper and functional condition. Basically, the lender owns the car, but you are responsible for it for the time being until you finish paying up your loan. In case of default, the lender will remain with the title to the car and will not pass ownership to you.

A car that has been paid up

You can also use an owned car as collateral in a car title loan. In such an arrangement, the lender has to make sure that you have some equity in the car; either you own all of it or part of it. Afterwards, they will ascertain the market value of the asset and use it to calculate the loan to value ratio which essentially determines how much money you are entitled to. You can also do the valuing yourself just to ensure that you are not being ripped off.

You can still use your car as a means of transportation as long as you are still repaying your loan. It is important to service it regularly in order to maintain its good condition and prevent its value from dropping. Remember that your car may be repossessed by the lender if you fail to perform your part of obligations, and this is never subject to negotiation.

Home equity

Again, ensure that you own a percentage of that home before you present it as collateral for a secured loan. The best part about using home equity as collateral is that the value tends to appreciate over time, hence is a better borrowing bargain. This type of collateral is usually very attractive to lenders as they are assured that the asset will have a higher value at the time of seizing it than it was when the loan was originated.

The value of the collateral is determined after calculating the difference between the market value of the property, and the amount you owe on the mortgage. Failure to pay your debt may force the lender to seize and sell your home so as to satisfy it.

Stock certificates

These documents can be used as collateral in borrowing a loan as they allow access to your lender to access your investment accounts in order to get cash in case you default on loan payment. Essentially, you pledge a certain amount of shares as security for the loan. You are not allowed to make any payments until the loan is fully repaid, or benefit from any dividends as they form part of the principal and interest combined.

You may transfer the stocks to the lender in case you default on payment of the loan, and this is pursuant to a loan agreement you sign at the beginning of the transaction stating that you pledge your stocks to the lender as security.

Saving account

A savings account earns interest with time, and can be used as a simple form of collateral instead of liquidating it to get financing. It is advisable to borrow from the same institution in which you are saving as this simplifies the procedures involved. The lender considers the amount of money you have in order to calculate the loan to value ration and determine the amount of money you can borrow. It is an inexpensive option as your money stays put in the account, and interest continues to accumulate as normal.

In the duration of the loan, you are allowed to make deposits and withdrawals that do not interfere with the amount of money that has been pledged as security. If you fail to pay the loan, your lender is allowed to empty the savings account.