If you need extra money to cover the costs of home renovations, financing, or debt consolidation, you may want to consider taking out a loan. Prudent use of unsecured loans can fill the risk budget gap for homes or other assets.
The interest rate on a loan depends on your credit rating and income, which is not always suitable for everyone. Before making a decision, consider the pros and cons of consumer loans.
Experts call a guaranteed loan a loan provided to individuals against collateral, which in value is fully consistent with the size of the loan.
Such a subsidy scheme is considered the safest since the lender does not risk his capital. At the same time, a scheme with the involvement of third parties is often used, when funds are issued to the borrower through intermediaries.
Key criteria for a guaranteed loan
The parameters for identifying the guaranteed loan should be clearly defined. If the collateral provided does not meet all the requirements, then the loan is recognized as insufficiently secured.
An example of such a loan is an OECD bank guarantee. When a grant is not collateralized, it is identified as an unsecured loan. The main criteria for a guaranteed loan:
- availability of collateral
- full compliance of the collateral with the size of the loan provided in monetary terms
- involvement of third parties in the process of subsidizing
- official confirmation of the value of the pledged property – an independent expert opinion
Consequences of non-payment of debt
The property that fully covers the loan amount acts as security for the loan. This includes:
- real estate
- bank deposit
- movable property
- securities
As a rule, the bank claims to receive, as security for the loan, property that can be accurately and unambiguously assessed. If the collateral cannot be accurately estimated, then the relationship between the borrower and the lender becomes much more complicated.
The financial institution reserves the right to refuse a loan. If the client refuses or is unable to repay the loan, the bank has the right to seize the property in accordance with the established procedure and subsequently engage in its sale at a market price in order to recover the debt.
The amount received as a result of the sale of the property is redistributed between the lender and the client. The bank will indemnify in full for losses incurred as a result of non-repayment of the loan. The remaining funds, if any, are returned to the borrower, who has the right to dispose of them at his own discretion.
Advantages and disadvantages of guaranteed loans
Guaranteed loans have a number of advantages:
- low-interest rate
- providing loans to persons with negative credit history
- allocation of funds under the guarantees of third parties
Also, the borrower can count on the following preferences:
- the opportunity to receive a larger amount of funds than without collateral
- longer loan term
- decrease in the size of monthly payments
The negative factors are as follows:
- failure to fulfill obligations to the bank will lead to the seizure of the collateral
- large financial penalties in case of late payments
- credit burden for a long time
- falling market prices for property pledged as collateral
Types of collateral
Pledges are of the first and second order. If the client first provides property as security, then it is considered primary. When a citizen decides to get another loan and re-mortgages real estate, the second stage mechanism is activated.
Financial structures regulate relations with each other in this case, by concluding a written agreement, distributing preemptive rights to the sale of property in case of non-repayment of the loan.
However, it is necessary to distinguish between the concepts of collateral and security.
If the client intends to take exactly the guaranteed loan, then he will have to make an immediate firm pledge, in the form of his own property or objects belonging to third parties with the conclusion of an appropriate agreement.
Types of guaranteed loans
Security is considered to be guaranteed in the form of obligations of the borrower or guarantor. The guaranteed payday loans no matter what Australia‘s collateral includes the entire range of contractual relationships between the parties.
The most common examples of guaranteed loans are as follows:
- car loan – a vehicle purchased by a citizen acts as collateral
- mortgage – issued on the security of real estate purchased or already owned by the client
- leasing – the client buys equipment in installments
Limitations and responsibilities
The borrower has no right to make any transactions with the collateral, including:
- sale
- exchange
- donation
The bank has the right to exercise full control over the use of the facility until the debt is repaid. The client undertakes to maintain liquid assets in proper form, to take timely measures to maintain the commercial value at the required level.
If real estate acts as a pledge, then it is required to regularly carry out cosmetic and major repairs, to restore in case of fire, flooding. By issuing a guaranteed loan, the bank relieves itself of the need to carry out a list of measures aimed at verifying the client:
- the degree of solvency – it does not matter, because the risks are leveled
- credit insurance – absent if the property is insured
- collection of premiums from the borrower – usually charged in connection with the risks of non-repayment, but here their application is irrelevant
The advantages of this form of issuing money are obvious for all parties. For the client, the main thing is to correctly assess his strength, so as not to lose his property.
A financial institution should pay attention to assessing the value of the object and monitor its market value throughout the entire maturity period. The guarantees received by the organization neutralize risks and provide favorable conditions for clients.