A collateral loan, also known as a secured loan, is a loan where the borrower pledges some kind of car as collateral for the loan. That asset may include items such as cars, jewelry, diamonds, artwork, or basically anything of value that is worth more than the loan amount. When the collateral is received, it becomes secured debt which is owed to the creditor, or the person who gives the loan. In other words, the asset is secured by the collateral.
What are some examples of collateral loans?
Examples of collateral loans are mortgages (the property is the security), title loans (the title of the vehicle is security), or personal property loans done at places such as pawnshops, in which small but valuable collateral is pledged as security for a debt.
What happens if the borrower does not repay a collateral loan?
In the event of a loan default, meaning the borrower fails to pay the creditor, the lender then takes possession of the asset that was used as collateral for the loan. Once the lender takes possession of the asset, they usually sell it to get back a portion of or all of the money lent out to the borrower.
Collateral/Secured Loans Vs. Unsecured/Credit Loans
The opposite of a collateral loan is an unsecured loan, in which no item or piece of property is pledged as collateral for the loan. Examples of unsecured loans are credit cards, student loans, and other types of financing in which no hard assets are pledged as collateral.
The main difference between the two is the level of risk, with risk being largely relieved in collateral loans since they allow the creditor to take the property in the event that the loan is not repaid by the borrower, which is known as a loan default.
Another large benefit of a collateral loan versus an unsecured loan is that collateral loans can be funded very quickly. As soon as possession of personal property or a lien is put on a piece of property or vehicle, the loan can be funded. With unsecured loans, credit scores are a huge factor in obtaining a loan since a person’s reputation is the main consideration when extending credit.
With many types of collateral loans, credit is not even a factor since the lender is secured with assets.
Benefits of a Collateral Loan
- The loan can be funded to the borrower very quickly
- Bad or poor credit is not a factor
Biltmore will fund your loan immediately regardless of bad credit. Call to set up an appointment or come in to receive a collateral loan from Biltmore today!
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Chandler: 480-705-5626 670 N. 54th Street, Chandler, AZ 85226
Scottsdale: 480-991-5626 10830 N Scottsdale Road, Scottsdale, AZ 85254