If you’re unaware, a collateral loan is a type of loan that uses assets as security instead of money, it’s one of the most common types of loans and it can be extremely helpful when you need cash fast.
Read on to know more about this lending option and how you can get your hands on one without much hassle.
How does a Collateral Loan Work?
The asset-based lender will come to you and try to take a percentage of your assets as security for the loan, you can pledge any property you own as security, including land, houses, cars, gold, and other items.
The lender will pay you the amount that you loaned plus interest and some additional charges and the lender will then go to the court and ask for a resolution where the court will order you to hand over the pledged asset.
If the lender does not get their desired amount after a certain time, he or she will have to repay the loan amount plus interest.
Steps to Get a Collateral Loan
If you are looking to apply for a collateral loan, here’s what you should do:
- First, search online for the lending company that you want to use.
- Call the company and ask a customer care representative to get a loan application form.
- Fill out the form and send it back to the company along with your documents.
The company will review your application and then decide whether or not to approve you for a loan, this is the typical process for collateral loans, but you should keep in mind that there are other ways to apply for a loan without going through this process.
You can also call the customer care number of the lending company and ask to be connected to a loan officer.
Things to Keep in Mind before Applying for a Collateral Loan
- Make sure you are able to repay the loan – You will have to pay interest on the loan if you don’t have the money to pay it back, the lender will take your assets.
- You should also keep in mind that you will have to pay some additional charges as well and make sure you can afford these extra charges.
- Choose a loan that you can repay – While it’s good to get a quick loan, you should also make sure that you can afford to repay it.
- A collateral loan will cost you more than a typical unsecured loan because you are going to have to pay interest as well as additional charges.
- Keep all your documents safe – When filling out the application form, ensure you keep all your documents safe, the loan company will request proof of identity, address, and PAN card. If you lose any of these documents, you will not be able to get your loan.
- Know the difference between asset-based and non-asset-based loans – There is a lot of confusion surrounding the difference between asset-based and non-asset-based loans, you should be aware of the difference between the two.
- Don’t apply for a loan just to get a loan – Even though collateral loans are a quick way to get some cash, you should not go through this process just for the sake of it, apply for a loan only if you really need it.