What is collateral?

Category: Loans

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Loans are either unsecured, or secured by the borrower’s collateral. Collateral is sometimes needed for loans as assurance that the loan will be paid in full—if not, the lender will have the legal right to seize the assets that were used as collateral in order to sell them and use the money to satisfy the debt.

Once the borrower pays the loan off, the lender no longer has any rights to the borrower’s assets, and they are no longer considered collateral.

Examples of collateral

Depending on the value, a lot of different things can be used as collateral when obtaining a secured loan. Common examples of collateral include homes, cars, cash accounts, and investments, depending on the type of loan.

When collateral might be needed

There are plenty of loans that don’t require collateral—credit cards are a common example. But larger loans might require collateral, especially if you have poor credit. In fact, those with poor credit might be ineligible for unsecured loans, and will need to pledge an asset as collateral if they need to borrow money.

Examples of secured loans

Some examples of loans that require borrowers to pledge assets as collateral include cash title loans and car title loans, both of which will usually require that the borrower uses their vehicle as collateral. Failure to back the loan in full can result in the borrower losing their car, so these types of loans should only be used as a last resort.

If you need money to take care of medical debt, mounting bills, or other financial hardships, you may have other options aside from taking out a loan. If you’re receiving periodic payments from a structured settlement or annuity, why not access some or all of your money now?

Instead of putting your credit score or assets at risk, you can access money that rightfully belongs to you. As such, there is never anything to pay back—the money is yours to keep because it was yours to begin with. The only difference is that you’re receiving it in one lump sum, instead of receiving smaller installments over a long period of time. A lump sum of cash can make it easier to take care of bills and expenses, and can possibly eliminate the need to take out a loan. Contact Peachtree Financial Solutions today to go over your options and to receive your free quote!
 

Nothing above is meant to provide financial or tax advice. You should meet with appropriate professionals for such services.

Tags: collateral, credit, Credit Score, secured loans, unsecured loans

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