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Collateral Loan – Secured Money Against an Asset You Own

Collateral loans are very common nowadays in financing institutions, where the borrowers are being required to hand their assets to the lenders as a kind of assurance in case the borrowers can not pay back the borrowed money. This is one easier way to motivate borrowers to repay the loan.

Collateral LoanPHOTO BY FLICKR.COM/KENTEEGARDIN

Collateral Loan - Various Kinds of Loans with Secured Assets

Generally, there are various kinds of collateral loan in financing and banking industry which are being offered to the money borrowers; in a certain condition or agreement that they will surrender their some assets as a collateral for the money borrowed. Just in case, they are not already capable of paying it continuously. This gives lenders great assurance that whatever happens, they will still earn back whatever money they released to the borrower. Furthermore, some common types of collateral loan in the financing market are housing loan, insurance loan, car title loan, cash title loan, title program loan and motor vehicle equity loan. However, these kinds of loans are expensive and very risky, just keep in mind that before availing these loans, make sure that you have a real time frame in paying the money back to the lender, otherwise, you may lose your valuable asset.

Cash Collateral - Used for Company Bankruptcy Cases

Cash collateral is only applied for corporate bankruptcy cases. Meaning, when a company or debtor has plan to avail a loan in a financing institution, the bank or lender has the right on the company’s profits and proceeds such as company property, products, certificates of deposit, security bonds, cash deposit, time deposit or even savings deposit. In this case, the lender has the ultimate right on the proceeds as soon as the loan is already approved and released to the borrower. If the proceeds are being sold, the convertible amount will serve as collateral for the loan. On the other hand, the borrower has no right to touch the proceeds without any creditor’s approval or order from the court. Moreover, cash collateral loan is very common among businessmen in different industries; for the reasons that it has payment period of one year or more. Plus, it offers credit limit of ninety percent of the guarantee value of the collateral; and you can even avail this in foreign currency. Similarly, it has easy withdrawal processing, as well as it does not put interest on the unused portion of the loan.

Collateralized Loan Obligation - Special Purpose Vehicle Loan

Collateralized loan obligation (CLO) is other known as special purpose vehicle loan; this type of loan is popular among various business investors through securitization; because it offers several advantages to the debtors as well as to the creditor. This type of loan is basically made through different tranches of payment from different investors. Meaning, both middle-sized and large business investors are pooled together in one group, in order to avail loan for themselves. Whatever amount of loan, processing fees, charges and loan interest; all will be divided among them. Correspondingly, it also lowers the price costs of loan that debtors have to pay. And, since the loan is also sold to different investors, it has very minimal repayment value for every debtor. This provides group borrowers with both low-risk loan and an easy payment scheme. Equally important, with this kind of loan, many financing institutions are more willing to take the risk of lending money to various debtors, so as to give them low price costs in availing the loans.

Written by Troy Nelson

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