A common argument for buying assets is that you can always sell them off and recover your investment anytime you need quick cash. But what if you can get the money you need to meet urgent expenses while you still get to keep your precious asset? This is where collateral loans come in.

Getting a loan is sometimes a great idea when you need cash to settle urgent expenses. And it’s even better when you have an asset you can use as collateral for the loan. This can save you from the stress and excessive paperwork of traditional credit-based loans. In this post, we will explain what a collateral loan is and how to obtain this type of loan without selling your asset.

What Is A Collateral Loan?

Also known as a secured loan, a collateral loan is a type of loan backed by an asset that you own. The asset itself is known as the collateral, and it is meant to assure the lender that you’ll repay the loan. Depending on the lender, the asset can be anything from real estate to cars or luxury items such as expensive bags and wristwatches. Some lending companies such as the AMETA finance group focus exclusively on luxury watches as security for loans.

An asset-based loan allows individuals or businesses to obtain the capital they need by offering their assets as a guarantee for a loan. The lender assesses the value and authenticity of the asset and provides the required funds based on the asset’s estimated market value at the time of the application. This type of loan is often used by people with urgent money needs who own a valuable asset that can be accepted by the lender.

Unlike unsecured loans that are based on the lender’s confidence in your income, credit history, and ability to repay the loan, collateral loans are based on the assurance that the lender can recover their investment by selling off the asset If you fail to repay the loan at the agreed time.

How Do Collateral Loans Work?

Collateral loans operate on a flexible framework that relies almost entirely on the asset you’re able to provide for the loan. Before a lender approves any loan, they need to be certain to a reasonable extent that they will repay the loan based on agreed terms. With traditional lenders, the way they do this is to confirm that you earn enough income and have a good history of loan repayment with other lenders (creditworthiness).

Loans using collateral are different. For this type of loan, the borrower signs off the ownership rights of an asset they own to the lender to receive a specific loan amount. The lender holds the asset for the loan duration and will transfer ownership back to the borrower if they repay the loan and interest at the agreed date.

Before approving a collateral loan, the lender needs to determine how much the asset in question is worth. The market value of this asset will determine the size of the loan, interest rate, and other terms of the deal.

How to Get Quick Cash Through Collateral Loans

So how does the collateral loan application process work? Most lenders try to make this process as straightforward as possible. One of the main selling points of collateral loans is that they’re easier to get compared to traditional loans. The steps for obtaining quick cash with this type of loan include:

Step 1 – Application

The first step in obtaining a collateral loan is to send in your application. Many modern asset-based loan providers have online platforms that allow you to initiate the loan without visiting a physical office. The application form typically includes fields to provide details of your asset which may be used to prepare an initial quote for your loan offer.

Step 2 – Asset Valuation

The next step in obtaining a collateral loan is to have the asset appraised. The lender typically works with experts who can determine the current market value of the asset. The loan amount is a percentage (60 to 80%) of the asset’s market value. Other terms of the loan such as the interest rate and repayment period also depend on the asset’s value. In the case of luxury items like watches or bags, the item may be shipped securely to the lender for valuation.

Step 3 – Loan Approval

After the asset’s value has been determined, a loan offer with all the terms and conditions of the deal will be sent to the borrower. If the borrower agrees with the terms, an agreement is signed. Depending on the type of asset, the lender either takes possession of the asset for the loan duration or simply receives the ownership documents for the property.

Step 4 – Repayment

After the collateral loan has been issued, the borrower is expected to adhere to the repayment terms indicated in the loan documents. This includes repaying the loan and interest rate based on the agreed schedule.

Where to Find Collateral Loans

Many financial institutions offer loans using collateral with varying terms and conditions. The type of assets accepted as collateral may also vary from one service provider to the other.

• Banks: Traditional banks offer a wide variety of loan services and this may include collateral loans. Large national banks and even smaller community banks borrow individuals or businesses collateral loans with competitive terms. This might be a good option if you’re already a customer of the bank. However, traditional banks often set stringent conditions for loans, and this may apply to collateral loans as well.

• Credit unions: another traditional institution that may offer this type of loan service is a credit union. These are non-profits co-owned by several members. Many credit unions offer collateral loans with lower rates and attractive terms. However, these loans are often restricted to members who maintain an account with them.

• Private lenders: private money lending companies provide access to borrowing opportunities that may not be available with traditional lenders. Getting cash from private lenders is often faster and more convenient because they offer simpler processes with less documentation. Some private collateral loan providers even have online platforms where you can send in your application and provide the details of your assets. This makes it possible to get loan approval even without visiting a physical location.

Pros and Cons of Collateral Loans

A collateral loan is one of the quickest and most effective ways to borrow money especially if you have the required asset to back it up. However, this type of loan does come with some risks that you should consider. Here’s an overview of the pros and  cons of accessing cash through collateral loans:

Pros

• You’re more likely to be approved: Collateral loans are based on the value of the asset and not the person borrowing the loan. If you’re having a hard time getting traditional loans due to credit issues or any other reason, you can try this alternative.

• Quicker process: a collateral loan is a great option when you need to get cash urgently. Once your asset has been authenticated, you’ll get an offer right away and the loan is disbursed to your account within 24 to 48 hours in most cases. This is even faster than trying to sell the asset, especially for properties that aren’t easy to convert to cash.

• You might get bigger loans: the amount you’ll get with this type of loan depends almost entirely on the value of the collateral. This might qualify you for more than you would have gotten normally with your credit.

• No impact on your credit: An asset-backed loan does not require a credit check since it doesn’t depend on your creditworthiness. This type of loan might be a good idea if you’re concerned about the impact of a loan application on your credit history.

Cons

• Risk of losing your collateral: A collateral loan gives you access to quick cash with no need to sell your asset. However, there’s still a risk of losing the asset if you fail to repay the loan at the agreed time. The lender will seize and sell the asset to recover the loan if you default on your payment.

• You need to have a valuable asset: Unlike unsecured loans that you can get based on your credit history and income alone, you need to have an asset that is valuable enough to get the money you need.

Conclusion

A collateral loan is a valuable financial tool that allows you to access the money you need to meet urgent needs by leveraging your assets. The flexibility, ease of access, and speed of approval for this type of loan makes it a suitable choice for anyone who needs urgent cash and owns an asset valuable enough to secure it. Used wisely, an asset-based loan is a powerful instrument that can help you meet your financial needs without losing your prized possession.