Faced with a loan for particularly large amounts, in addition to all the necessary documents, the bank may require some other conditions. For example, the presence of at least two guarantors, who in the case of which will have to answer for the debts. But in some situations, the bank may ask for the property as collateral. What to do in such situations? Read on https://telegram-store.com/catalog/product-category/channels/economics.

What kind of collateral is necessary and how to behave?

All banks work for income for themselves, so they will not lend even small amounts to people who could potentially default on their debts. Banks used to only calculate the ability of a client to pay on time, using his credit history. Now, however, the loan approval process has become a bit more complicated, given that bankruptcy proceedings are gaining popularity, which, even with a good credit history, can leave the bank with no income.

In this case, the bank takes a guarantee from the person, in the case of default, taking the property or transferring the obligation of the loan to another person.

This is what is called collateral – that is, the bank’s guarantee that it will receive income.

However, it will not, even hypothetically, just give away the property, so there are some privileges for the borrower, too. For example:

  • the possibility of getting a larger amount;
  • execution of a loan agreement for a longer period of time;
  • higher probability of approving the desired loan amount.

For all loans and credits, there may be various protective measures. They are divided into large groups:

  1. The first type. This includes those measures that establish unpleasant consequences for the debtor in the case of violation of the obligations undertaken. This can include penalties – fines, forfeitures, increased interest, etc.
  2. The second type is associated with the allocation of a certain part of the debt or property, which are used to satisfy the creditor’s claims. This includes the pledge of property, automatic withdrawal of funds from accounts, etc.
  3. The third type of measures is the involvement of third parties to meet the requirements of the bank. This can be a guarantee, attracting a co-borrower or obtaining a guarantee.

Forms of credit security

Since banks are structured differently and have different approaches to clients (e.g. natural person or legal person), the measures are also different. They are all divided into two main groups:

  1. Basic security measures. Pledged property, appointment of guarantors.
  2. Additional. These include promissory notes, rights of claim under the contract, insurance and the like.

In this case, the pledge of property is the main measure to protect the bank from the refusal of the client to fulfill its obligations. It is a rather complicated process that must be conducted under the supervision of lawyers on both sides. When you pledge property (especially real estate), compile a document – a list of everything that goes into this “collateral”.

Important! It is worth understanding that these measures apply only to particularly large loans or to those who have a “bad” credit history.

What other kinds of collateral are there?

The most popular and “sparing” is the payment of penalties. This method can be used with most small and medium-sized loans. In this case, the bank automatically assesses an additional amount – the penalty. This amount is specified in advance and is a percentage of the debt.

Also, this may include transferring the debt to “third parties” in cases where the client has not paid the loan for a long time (in other words, collectors). Although their activity is restricted by law, they are also an option to secure the loan.