When borrowing, financial institutions want to insure themselves as much as possible when lending to their clients. There are loans that require some cover for the credit institution, otherwise they will not lend. What kind of loan cover is required for different loans? You wouldn’t think so, but in fact, every loan needs some sort of cover. In the public mind, people only associate the concept of collateral with mortgage loans, but in fact, if not called collateral, other types of loans, the bank needs some sort of collateral.
Collateral is important for lending institutions because even if the debtor does not pay his loan, the bank will still have access to his money. Depending on the type of loan, the type of security the bank will accept. The collateral offered and expected can take many forms:
- supplementary income
- entrepreneurial income
- involvement of a debtor
- bank deposit
What kind of loan cover is required for different loans?
A home loan is a mortgage that can obviously only be used for home purposes. The bank requires real estate collateral to apply for a loan. In the absence of real estate collateral, the financial institution does not lend. Of course, just a real estate collateral is not enough for borrowing, the bank will even look at the income that requires a proof of income and at least 3 months of employment. It may also provide additional security to the credit institution if the salary is paid into a current account with the home loan bank. It may also be advantageous for you to involve a debtor in the credit transaction.
In the case of a freelance mortgage, as its name implies, you can spend whatever you want, but you need real estate to pay off the loan. In addition, just like a proof of income required for a home loan, it is a good-time employment relationship. It may also be important for the bank to arrive at a bank account with the lending credit institution. It is considered advantageous for the judgment if the debtor contract is included in the loan agreement.
Real estate coverage is not required for a personal loan, but proof of income is very important, as well as proof of the required minimum employment. The personal loan does not have any other collateral requirements and is therefore one of the types of unsecured loan.
An overdraft is a credit line that you can apply for an overdraft. The money can be used freely up to the credit line. You can repay all or part of your debt at any time. Note, however, that the outstanding debt is subject to interest. The condition for applying for an overdraft is that the salary is paid to the bank and that you can prove that the bank has the income expected for the time required. Banks do not require other collateral from applicants, so overdraft is also an unsecured loan type.
A credit card is a credit line type of credit. After a 1-month spending period, you typically have 15 to 23 days to repay your debt. If this is not done, the financial institution will charge interest, and if the bank pays less than the minimum payment required, the bank will also charge a late fee. In order to apply for a credit card, you must prove that you have at least the amount of time you expect from the bank. In addition, other collateral is not expected by credit institutions, so a credit card is also considered as unsecured credit.
If you have money to save and would need some of it, but it would cost too much to access your savings, you have the option of taking out a pawnshop. Lombard loans have variable interest rates, so raising the interest rate environment may result in significant additional costs. You should pay attention to this. When applying for a pawnshop, banks will ask for bank deposits and / or securities to be deposited. Such securities may include retail government securities, investment funds and equities. The bank may require the use of additional collateral if the price of its secured securities falls below the expected level.