Getting approved for a loan can be difficult when you don't have a great credit score. Luckily, there are other forms of collateral you can use to secure a loan.
What is a Collateral Loan?
The first thing you need to understand is what is collateral? Collateral is when a personal asset is being used as financial security. For example, you might need to use something you own that has monetary worth in order to secure a loan. These types of loans are called collateral loans. Auto loans are the most common type of collateral loan.
If you own your car completely (meaning you aren't still paying for the car), then you can use your car's title to secure a loan. This helps lenders mitigate the risks of lending money to their customers. It also makes it easier for borrowers with low credit scores to get the loans they need.
Secured Loan vs Unsecured Loan
When a loan has a type of security attached to it (like the title of your car or a high credit score) then it is also known as a secured loan.
When a loan doesn't have any type of security attached to it, then it's known as an unsecured loan. The risks the lender takes on when issuing an unsecured loan are higher because the chances the borrower will fail to repay the loan are higher.
Pros and Cons of Secured Loans vs Unsecured Loans:
- Unsecured loans usually have much higher interest rates and fees
- Secured loans include using your own property or assets to secure the loan
Types of Secured Loans:
- Personal loans
- Title loans
- Mortgage
- Pawn loans
Types of Unsecured Loans:
- Signature loans
- Student loans
- Credit cards
How Do Collateral Loans Work?
In order to get a loan that's backed by collateral, there are a few things you'll need to do.
First, you need to own the property you want to use as collateral outright. You can't use your personal property as loan security if you don't own it completely.
If you are still paying off another loan on your house or your car, then you can't use that asset as collateral.
Second, you have to find a lender that offers collateral loans. Check City is one of those lenders. At Check City, you can take out a collateral loan on your vehicle.
Once you get approved for the loan, you'll sign the papers and allow the lender to take out a lien on your property.
What is a Lien?
A lien is a partial ownership of personal property given to lenders when securing certain types of loans.
Reasons to Get a Collateral Loan
Why would someone want this type of loan? There are many advantages. The main reason is to get a loan for bad credit.
Loans that are backed against a personal asset are less likely to need a perfect credit history from borrowers because the loan's security is tied up with a personal resource instead. Just remember, if you fail to pay back the loan or fail to make payments on time, this will still negatively impact your credit score.
People need loans for many reasons every year. A survey found that in the past year as many as 114.4 million people in the US took out personal loans.
Personal loans are taken out for many reasons. They can help pay bills, pay for groceries, consolidate debts, fix your car, pay medical bills, renovate part of your house, or even help pay for a wedding.
Collateral Loan Examples
If something you own has monetary value, then there is a possibility it can be used to secure a loan that's backed with collateral.
Your assets have worth and that worth can be used to your advantage when you need to borrow money.
Savings Account
If you have a savings account that meets a lender's requirements, you might be able to use it to secure a loan. The idea is that the funds in your savings account are the security to back up the loan in case you have trouble repaying the loan.
Having an adequate savings account also lets the lender know you have the ability to repay the loan, which strengthens your chances of getting the loan approved.
Residential Mortgages
A residential mortgage usually refers to the type of loan someone gets in order to buy a house. When you sign up for a residential mortgage loan, you allow the lender to have a lien on the house you buy until you finish paying off your mortgage.
This type of loan is tying the property you are purchasing to the loan taken out to pay for the property.
Home Equity Loans
Home equity loans let you use the equity or financial worth in your real estate property to help get a loan.
If you have a house or a mortgage, there's a possibility you can use it to apply for additional loans. Your home is a major asset with lots of lucrative value. In general, real estate property is a huge financial resource.
These loans can include single-family homes, townhomes, condominiums, multi-family homes, and even mobile homes. It all depends on the terms and conditions set up by your home equity loan lender.
Margin Trading
Margin trading is a finance term in investing and stocks. A margin is an extension of credit so that someone can trade on the stock market even though they don't have the funds required.
By using margin trading, you can trade and invest more than you could by yourself. These investments can then be enough to cover your credit and more so you still see a great profit.
The major disadvantage of using margin trading is if the investments don't pay off or if you lose money because now you will owe the investment funds you borrowed as credit.
Car Title Loans
Car title loans are the most common type of collateral loan. They work by allowing lenders to take out a lien on your vehicle. This means that the lender's name is on the title of the car during the loan term. This will allow them to take your car away in the event you fail to repay the loan.
But lenders don't want to possess your car. They want borrowers to successfully pay back their loans. Repossessing a vehicle is only a last resort that lenders will generally only use when no other option is available. Ideally, they're going to make more of a profit if they can help their customers pay back their loans.
How to Get a Collateral Loan at Check City
To get a title loan from Check City, all you need to do is bring a few items to your neighborhood Check City location.
Bring These Items:
- Your vehicle and title
- Proof of registration
- Your photo ID
- Ability to repay
Once you have these items you can fill out a title loan application online, at a store, or over the phone at (800) 404-0254. All you have to do after that is wait for your application to get approved and for the Title loan funds to come your way.
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