When you apply for a secured loan, the lender takes a lot of interest in the collateral. This is the asset that can be used to recover the funds in case the borrower defaults. Most lenders want valuable collateral that is easy to liquidate. In this post, we look at the main characteristics of great collateral and the alternative to go for if the secured loan is declined.
The main characteristics of good collateral
- Highly liquid and marketability
The lender wants an asset that can easily be converted to cash to recover the cash if the borrower defaults. This can only be possible if the asset can be traded freely in the market. If it is a house, it should be in a good location and properly designed.
- Ascertain ability
Lenders are very particular. The collateral you provide should be easy to ascertain the value at different intervals. The lender does not want to incur a lot of expenses trying to establish the value of collateral in the market. When such costs are incurred, they are passed to the borrower.
- Stability of the product value
The value of good collateral should not fluctuate with a great margin. Most lenders want stable collaterals that can hold the same value or even appreciate to avoid incurring losses. For example, the value of most houses does not fluctuate in value. However, collaterals such as vehicles can depreciate rapidly.
The security you provide as collateral should be easy to transfer to a new owner. The lender wants to be able to manage all types of risks including priority, liquid, legal, and modelling risks among others.
Logbook loans as an option to secured loans
If your car fails to meet the collateral requirements criteria or you have a very poor credit score, consider going for a logbook loan. However, logbook loans are very expensive because most people seeking them have a very poor credit score. Here are the key factors to consider if you want logbook loan.
- Look for a lender with a good reputation: Look for a company that has been in the market for some time and made a name for its good practices. These are lenders with some practices such as helping clients when they get into difficulty and not being hasty to recover cars.
- Check for the logbook loan offered at lower interest rates: While it is true that logbook loans have very high-interest rates, it is advisable to check for a firm with a better offer. Remember that you can also negotiate to have the rate brought down with a significant margin depending on the selected company.
- The loan repayment capability: The bottom line to selecting a good logbook loan should be personal repayment capability. Even if the lender is willing to give more, the focus should enhance personal repayment ability. This will help you to avoid incurring heavy penalties and getting the car recovered.
- Repayment flexibility: How flexible is the lender you select to borrow a logbook loan from? The best lender should be very flexible and even allow borrowers room for adjustments. He should not rush to recover the car because you are late with the payment for a week. In some cases, lenders even allow borrowers to make adjustments on the amount they pay every month. However, such adjustments might come with additional charges.