A collateral loan is a type of secured loan where an asset is provided to the lender in exchange for receiving a loan. Normally car collateral loans are used for obtaining a liquid asset like cash in exchange for an illiquid asset like a vehicle. Pawn shops are a perfect example of how collateral loans work.
When you give an item(collateral) to a pawn shop, they give you cash(loan). They also agree to hold the item for a specified time. If you can’t repay the loan in that time, the collateral becomes the property of the pawn shop. This type of loan is for someone who owns full rights to the collateral being utilized to secure the loan. These types of loans can utilize a vehicle, investments, real estate or even other valuable items like jewelry.
For collateral loans that involve a vehicle, lenders require that they hold the title of the vehicle while the loan is outstanding. Borrowers must prove they own the title as well as provide other pertinent information. In many cases the amount of the loan is usually about 50% of the value of the vehicle. This can fluctuate depending on the make and model of the car in addition to the year and mileage on the car. The lenders help to work with the borrowers to come up with a monthly payment they can afford to pay back within the loan period. Most loans are for a fixed term which can range from a few months to a few years.
One of the benefits of collateral loans is the ability of a borrower to obtain quick cash. Depending on the loan company you choose, they can normally fund the loan in a very short time-frame. The main reason these loans can be made in such a short period of time is because there is less risk to the lender. You can use the cash received from the loan for any purpose. In many cases, borrowers use the money to pay unanticipated bills, use the money to buy equipment for their business or handle short term cash flow needs.
Auto Collateral loans are usually made as fixed term loans, but recently our affiliate company, Fidelity One Credit began offering an auto secured revolving line of credit. This new financial product not only allows the borrower to use their car to get cash quickly but also provides the borrower with a more flexible repayment plan. Repayment is very similar to owning a secured credit card. Credit cards allow the consumer to repay the amount owed back over an extended period of time. They all require you pay a minimum amount each month, but you can always pay more if you can or even pay it all off at once. The advantage with this form of credit is that once you have paid off part of all of the cash initially advanced, you can request more cash advances.
This form of repayment is also more beneficial over a traditional loan because it allows the borrower to obtain more cash while making the same monthly payment compared to a similar fixed term loan. They both are collateral based loans or more commonly referred to as secured loans, but by utilizing a revolving line of credit instead of a fixed term loan, consumers are given more flexibility to manage their repayments. With competitive monthly interest rates and extremely low monthly payments, collateral loans using a revolving line of credit instead of a fixed-term loan are a great way to get cash fast. They are easy to obtain and come with many benefits. Collateral loans are a great way to get back on track!