While taking a loan, banks or financial institutions take up the risk of offering the money to an individual with the aim of recovering it later. However, there needs to be assurance that the amount given would be recovered.
The loan offered as such is termed as a secured loan. In essence, for such a loan, one offers their goods or asset to the financial institution for takeover by that institution in case they are unable to meet the financial obligation of paying back the loan. Such loans are advantageous in the sense that they are normally offered at lower interest rates as there is a guarantee.
A house is an asset and thus it may be used as collateral for a loan. However, there are issues, which relate to this need to be considered. For instance, when one seeks to raise funds for a personal loan, it is better to use the house as collateral rather than sell it altogether. The owner would still derive benefits from the services of the house while at the same time repaying the loan. Secondly, when the bank demands collateral of an amount equivalent to the value of the house, it can be used to offer an unsecured loan. In other cases, the amount of loan being borrowed may be very high to the extent that one asset may not be a full guarantee when its value is considered. A house in such a case may be offered as another asset to lead to the attainment of the necessary amount for the loan to be issued. Implying that the houses’ value or worth would have to be valued to offer the financial institution the guarantee of recovering the loan in case of defaulting in repayment.
Various financial policies are in effect today with some institutions setting benchmarks on the type of car to be used as collateral. This is mainly due to the dwindling price of cars in the international market today.
Buildings are valued together with the land on which they are built. The value of both the land and the building appreciates tremendously over a given duration of time. In the long run, when there has been a default in payment, financial institutions would readily recover their money since chances of a reduction in the value or worth of the land and the house are minimal.
The loan offered as such is termed as a secured loan. In essence, for such a loan, one offers their goods or asset to the financial institution for takeover by that institution in case they are unable to meet the financial obligation of paying back the loan. Such loans are advantageous in the sense that they are normally offered at lower interest rates as there is a guarantee.
A house is an asset and thus it may be used as collateral for a loan. However, there are issues, which relate to this need to be considered. For instance, when one seeks to raise funds for a personal loan, it is better to use the house as collateral rather than sell it altogether. The owner would still derive benefits from the services of the house while at the same time repaying the loan. Secondly, when the bank demands collateral of an amount equivalent to the value of the house, it can be used to offer an unsecured loan. In other cases, the amount of loan being borrowed may be very high to the extent that one asset may not be a full guarantee when its value is considered. A house in such a case may be offered as another asset to lead to the attainment of the necessary amount for the loan to be issued. Implying that the houses’ value or worth would have to be valued to offer the financial institution the guarantee of recovering the loan in case of defaulting in repayment.
Various financial policies are in effect today with some institutions setting benchmarks on the type of car to be used as collateral. This is mainly due to the dwindling price of cars in the international market today.
Buildings are valued together with the land on which they are built. The value of both the land and the building appreciates tremendously over a given duration of time. In the long run, when there has been a default in payment, financial institutions would readily recover their money since chances of a reduction in the value or worth of the land and the house are minimal.
