Paucity of funds at critical times compels us to borrow money from our relatives, friends or other known guys. Many borrowers prefer raising funds from banks, private lenders or other guys that ask for some sort of security that could be used if the borrower fails to repay the loan. The interested persons could, the entity engaged in facilitating loans through brokers or other guys.
A Loan Through Guarantee – Collateral is some sort of security that is provided by the borrower to the lender or the bank. Services of reliable middlemen, i.e. the brokers are also much helpful in this regard. They help the borrowers and the lending institutions that are brought together across each other for necessary discussions.
The Borrowers Must Know The Following:
- The lender asks you to hand over the security to him or her for enabling him or her to allow you the requisite amount of loan against the collateral. Be informed that if you fail to repay the loan within the fixed time period, the lender is at liberty to dispose of the security and recover the loan amount from the sale proceeds. Collateral serves as a safeguard to the lenders instead of legal action by them if the borrowers fail to return the loan amount to them. This is the easiest and most popular form of recovery in the event of loan repayment failure by the borrower.
- Assets or other collaterals are permissible under the law as regards loans. Some lenders even accept saving bank account balances too. Your costly automobiles, real estate equities, retirement benefits, investments, machinery or equipment, costly valuables including jewelry or insurance policies can also be considered as guarantees for availing loans. Receivables from your clients may also be treated as collaterals for giving you loans.
- The wise lender first assesses the value of your collateral that must always be higher than the permissible loan. Few lenders give loans to the tune of just fifty per cent of the total value of the security while others may allow higher loans to honest borrowers. Additional assets could also be asked as collaterals by the lenders if the pledged properties happen to lose their true worth due to any reason.The most important thing that the borrower should note is that he or she shall have to pay the remaining amount of the loan if the sale value of the security falls below the loan amount.