Collateral properties Loans
In a collateral loan, the borrower pledges assets such as property or financial securities to secure the loan between the leader and borrower.
There are a few types of collateral loans:
Loan Against Security:
A loan against securities is an extension of an overdraft by a financial institution. The borrower can then take short term loans within this limit.
Loan Against property:
Loans taken from financial institutions to finance property can be used by the borrower without restriction
Key Features of collateral loans:
- Collateral is an item of value used to secure a loan
- Collateral minimizes the risk for lenders.
- If a borrower defaults on the loan, the lender can seize the collateral and sell it to recoup its losses.
- Mortgages and car loans are two types of collateralized loans.
- Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.