Collateral assets

Advantages of a Collateral Loan

What are the advantages of a collateral loan?

  1. Higher chance of getting qualified
  2. More loan alternatives
  3. Low interest rates
  4. Higher loan amount
  5. Improves credit score

 

There are many different kinds of loans you can get in the Philippines. If you’re thinking of buying a house, you can secure a housing loan. If you’re planning on funding a small business or buying a car, you can secure a personal loan. Apart from the mentioned, however, you might not be aware that you could also secure a collateral loan.

So, what are the advantages of a collateral loan? The most pertinent type of collateral loan in the Philippines is an auto loan. In this case, you would have to give up an asset such as another vehicle which you already own as your payment security to the lender. The two other types of secured or collateral loans are savings and housing loans.

Continue reading to learn more about the advantages of securing a collateral loan.

 

Higher Chance Of Getting Qualified

A person approved for a housing loan

When dealing with unsecured loans, money lenders typically have many requirements. They will have to make assessments of your business and personal loans. Apart from this, they would also have to look at your current credit score or rating.

If you have a low credit score, you will have more difficulty getting an unsecured loan approved. This can either be due to your lack of diligence or failure to pay your credit card debts and fees on time. All of these are risk assessments that have to be undertaken to make sure you have the capacity to dutifully repay your lender in the future.

While collateral loans still require some information on your financial history, your lender will be more secure in the fact that you have given up a particular asset as an assurance of your payment.

 

More Loan Alternatives

Collateral loans typically give you more loan options. When it comes to securing a loan, you would definitely prefer it if you had a range of choices to base your decision on. The presence of a collateral loan gives you the freedom to determine the amount of the loan, the type of loan, and the timeline of payment.

Collateral loans are most commonly used when you’re aiming to secure a larger amount of money. As mentioned before, this can be done if you’re planning to buy a new car, for example. You will have to assure your older vehicle as an assurance of payment to the lender. On the other hand, you can also secure a collateral loan if you’re planning on starting up your own small business.

The added flexibility collateral loans can give you allows you to look for many other alternatives which you can financially handle based on your current situation.

 

Low Interest Rates

Low interest rates

If it’s your first time securing a loan, you might find yourself unaware of how interest rates might work. Simply put, an interest rate is the amount the lender charges you in exchange for borrowing a particular sum of money or for making use of their assets.

The interest rate can be determined by several factors depending on what has been stipulated by the lender. For example, particular lending companies can offer customers lower interest rates.

Another factor that can determine the value of interest rates is if the money lender can classify your investment as low-risk. Some unsecured loans would mostly be considered high-risk, but the same situation cannot be said for secured loans.

Payment Security, which your assets represent, will allow the lender to offer you lower or more reasonable interest rates on the loan.

 

Higher Loan Amount

Following the advantages which have been already mentioned, getting a secured loan would increase the chances of your lender offering you a higher amount of cash. Depending on the previously-mentioned factors, such as credit rating, financial status, and the like, you might get a less desirable value when it comes to unsecured loans.

Aside from this reason, there is a possibility that the value of the loan you can secure with a collateral loan would be much higher. This is because the amount of the loan depends on the value of the asset which you have chosen to pledge. Whether it is your car, your savings, or your housing loan.

 

Improves Credit Score

Close up of credit scores

Lastly, another advantage of securing a collateral loan is that it allows you to start off on a good credit record. Acquiring an auto collateral loan can serve as a good point of departure in your journey of having an exemplary credit rating. Just always ensure that you’re diligently paying your dues and debts on time.

 

Key Takeaway

There are several advantages of a collateral loan which you may not be aware of. Lenders will more likely have a collateral loan approved because they view it as a less risky investment compared to a loan that has not been secured by an asset of yours. The next time you think about starting up your own small business or buying a new car, consider the benefits mentioned above of securing a collateral loan in the Philippines.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *