Getting a loan with collateral is one of the options you can consider if you need cash immediately or if you need to keep money flowing in a new business. If you’re looking into borrowing money with the help of your assets, here’s a quick guide to help you understand the loan process, how to qualify for it, and if it will work best for your situation.
What is a loan with collateral?
Basically, a loan with collateral is a loan backed by an asset. It is considered a secured loan because it offers a higher level of protection for the lender. In case the loan defaults, the lender will have an alternative way of recovering the money immediately—which is through putting the collateral up for sale.
In some cases, asset-backed loans provide borrowers with cash to buy a big-ticket item such as a car or a house, which will eventually become the collateral for the loan.
How can I apply for a loan with collateral?
You need to have a high-value asset that can qualify as collateral if you want to apply for this type of loan. If your item is included in the list of items that a lender accepts as loan guarantee, you can proceed with application.
What are the items that can be used as collateral?
Assets used as guarantee for loans are not limited to automobiles, real estate properties, and jewelry sets. It can go way beyond that depending on what collaterals the lender accepts.
How much can I get from a collateral loan?
It will depend on the value of your collateral. In most cases, lenders will lend you an amount that’s equivalent to a portion of your asset’s appraised value.
What happens during appraisal?
Appraisal is the period wherein the current value of your asset is determined. It is a crucial step because it will determine the amount of money that the lender will let you borrow. That’s why you need to be familiar on what takes place during this process.
During the appraisal, the lender will inspect the item you want to use as collateral and look at its quality, condition, authenticity, and the performance of similar items in the current market. If you have any paperwork relating to the item, you can also present it to the appraiser as it may help them evaluate the piece better.
The appraiser should discuss the methodology used for the evaluation the item you want to use as collateral. If the result of the appraisal seems inaccurate to you, you can always ask for a second opinion from another evaluator.
What is the duration of the loan?
It will depend on what you and your lender agreed on. Typically, collateral loans can last for a few months to even a few years.
What are the fees involved in the loan?
Aside from the interest and loan amount, you may also need to pay other fees such as processing costs and early payment penalties.
All the fees involved in a loan should be indicated in the contract that the lender would give you. This document should state the terms and all the important information about the loan, including any additional costs. Make sure you understand the fine print before you agree and sign on it.
What happens when the loan defaults?
The lender will assume full ownership over the collateral. If you think you can’t settle the loan on time, you need to let your lender know and negotiate with them. Remember that they are more concerned on getting their money back rather than selling the collateral, so try to work out a compromise with them.
Lenders may either extend the loan duration, but charge you with a higher interest rate or rollover the balance to a new loan.
Is a collateral loan for you?
A collateral loan is for you if you need immediate cash and you have a valuable asset to use as guarantee. More so, if you have a less favorable credit report and you need financial help to get you back on track, this type of loan can also work to your advantage.
If you want to know more about collateral loans offered by Biltmore, please get in touch with us. Our team will be more than happy to assist you.