Collateral option is preferred by the investors when the loan amount is
huge. The borrower has to be in consent with the lender that he is
allowed to take a part of the collateral for selling purpose in case the
borrower fails to make the payment. DC Fawcett Virtual Real Estate
Investing Club Usually the borrower pledges his land and the borrower
can expect a reasonable amount when he applies for the loan.
The collateral is used as an assurance from the lender’s perspective. It reduces the risk as he does not lose all his money when borrower falls short on his payment. The lender has all the rights to hold the borrower’s possession when there is a payment default, the possession can be sold and the amount can be used as reciprocal for the loan.
The collateral is used as an assurance from the lender’s perspective. It reduces the risk as he does not lose all his money when borrower falls short on his payment. The lender has all the rights to hold the borrower’s possession when there is a payment default, the possession can be sold and the amount can be used as reciprocal for the loan.
Instead of taking legal action and to avoid lengthy
procedures, the lenders just sell off whatever the borrower pledges as
collateral and make money.
Not only land, there are different types of collateral which is listed below.
The valuable asset can be in any form which can be made into cash when you sell.
- Automobiles
- Real estate
- Savings account ( the lender takes the amount that is left in your account whichever is due)
- Insurance policies
Usually the lender only sanctions a loan which is
very much less than the value of the asset. There may be certain
situations where you may need to add collateral when the existing
collateral loses its value.
Collateral loans are usually applied by business men
as well for personal use. They are the last choice when the investor has
a bad credit score as these loans are expensive.
Similarly, home equity loans are preferred when the
borrower is in need of huge amount. These loans are not having much
strict guidelines and easy to get qualified. It is more of a second
mortgage, when the first home you own has resulted in sufficient home
equity. These loans are considered to be safest and you cannot come
across scammers and fraudsters as these loans are provided by the bank. Know you income and expenses before applying for the loan.
The following are the benefits of home equity loans
- Rate of interest is low
- People with bad credit score can apply for these loans as getting an approval are easier.
- The investors get tax deductions
When the borrower fails to repay, his house which is
kept as collateral is taken by the bank and the foreclosure procedure
comes into force. The risk factor should be kept in mind before applying
for home equity loan. The fear of losing your property will stop you
from applying the home equity loan at times.
Also the bank should not approve loans having higher
amount as bank may face a financial crisis if all those borrowers
default in payment. The borrower can avail two options namely HELOC and
lump sum, which is more like second mortgage type. To know more about
second mortgage, the uses read the blogs in DC Fawcett virtual real estate investing club.
