Collateral Loans 101: How do These Loans Work?
Collateral loans are a common and useful way to borrow money because the borrower is using an asset to secure the loan. Examples of a collateral loan include securing a home mortgage with the home or buying a car with the car acting as collateral. Some collateral loans use existing assets to secure them, such as a home equity loan using equity from an existing home or using investments to obtain financing.
Collateral loans are considered “secured” because the loan is secured by the asset itself, not by other property or personal possessions of the borrower. The downside of this is that the collateral can be lost or forfeited back to the lender, referred to as repossession if the loan isn’t paid as agreed, which is called a default.
You can use your home or perhaps other property as collateral for a loan with a few conditions:
- You need to prove the asset has adequate value to secure the loan. With a home or physical property, this is normally done by an inspection and assessment of the current market value.
- You need to prove you own the asset. This can be done by showing a clear title to the property or asset.
- You must agree in the collateral loan that the lender can repossess or foreclose the asset if you fail to repay the loan. The collateral you offer the lender is what protects them from loss if you fail to repay.
Some people may try to obtain financing using unsecured loans. The problem is that there is no collateral to protect the lender so the financial hurdles can be very high, such as excellent credit ratings or a large verified salary or income. This type of loan is unavailable to most borrowers, which is why the bulk of loans are secured or collateral loans.
AHL Hard Money Network can offer you collateral loans using the equity in your home or other property. The advantage of using our Network is that we don’t focus on credit ratings like conventional lenders. We secure our loans with the equity in your property, and we can get you money much faster that way. Contact AHL Hard Money Network today if you need money quickly or don’t have the credit rating needed for a conventional loan.