Types of collateral loans

Types of collateral loans

Installment loans are both secured and unsecured loans, with a decided date to end the loan payoff. Secured loan allows more lenient requirements and conditions than unsecured loans for the borrowers. You can get secured loan easily with bad credit history. Installment loans can be both personal and commercial loans offered to the consumers.

Low amount of installments and low interest rate will save you a lot of money in the long run and help you build good credit score. As you are paying back a fixed amount on fixed time, you are showing financial responsibility. Different types of installment loans are auto loan, mortgage, student loans and credit cards.

Installment loans have its pros and cons to guide you. The advantage of paying back loan in small installments is easy on your pocket and manageable for you. The amount of loan is fixed and no sudden surprises for you. Installment loans are easily approved due to the presence of collateral. Easy to payback on time helps build your credit score.

Likewise, it has its disadvantages also, for example the longer period of repayment of loan means more money in the form of interest. Some lenders charge high interest rates due to bad credit and unsteady source of income. Some lenders charge prepayment penalty if borrower pays off loan before the fixed period. Be aware of such scams.

Secured loans require collateral, an asset of the borrower which is used as security for the lender. This asset can be a property, or a car or even valuable jewelry or stock. Collateral based loans are also called stock-based loans or security-based loans. Borrowers can use their financial stocks or other investments, as collateral, to get secured personal loan.

Just like other loans, loan on stock requires interest and lender may get control over the shares until the borrower pays off the whole debt. If the borrower is unable to pay off debt money, the lender has the right to sell the shares and compensate his money.

Usually the lender approve loan against the value of stock. The price of shares may fluctuate with market demand, thus create risk for the lenders. The value of stock cannot be guaranteed over the long term of loan. If the stock loses value, the collateral becomes insufficient for the lender. And during this if the borrower fails to pay back loan, the collateral is not enough to cover the k level of loses. This type of loan can cause problems for both, the lender and the borrower.

It is better to understand the terms before using your assets as collateral, to secure them. Make research and discuss with your lender to understand everything before signing. Always repay responsibly your monthly installment to avoid any harm done to your assets. Always think twice before using your assets as collateral for a secured loan.

It is not advised to get loan and invest in stock market. It is recommended to invest when the return on the investment is high and the risk level of investment level is low. Investing in stock market is long term and does not remain flexible the whole year, makes it risky.

Leave a Reply

Your email address will not be published. Required fields are marked *

six ÷ = three