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Everything You Need to Know About Collateral in a Loan

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17 JULY 2019

We take out loans for many different reasons and under many different circumstances. Whether you need help buying a new car, covering some unexpected medical bills, or consolidating your debts under a single invoice, you’ll want to do what you can to ensure the best possible payment conditions for your loan. So, in order to secure your pawn loan or bad credit loan, many people choose to use collateral.

Collateral can be a huge help to borrowers who are burdened with an unfortunate credit history or who need to borrow more money than usual. Collateral is a simple concept but using it wisely requires some research and preparation. Continue reading to learn the essentials about collateral, what it is, how it helps, and what it means for your next loan!

What is collateral?

Put simply, collateral is the “security” in your secured loan. It’s an asset or valuable item, such as a car, a PlayStation, a piece of jewellery, or some other item of measurable value. The collateral can be provided as evidence that you have the assets necessary to pay off your loan. Collateral is what makes certain types of loans, such as pawn loans, preferable for many borrowers.

Why would I use collateral?

Lenders consider collateral as reassuring. Providing an asset of value upfront lowers the risk that lenders consider when determining the terms of your loan. For this reason, collateral can lower the interest rates on your loan, increase your borrowing limit, and ultimately improve the chances you’ll be approved.

For borrowers with low credit scores, using collateral could be the only way to secure favourable rates. Collateral can also offset some other unfavourable issues with your current financial circumstances, like if you are unemployed at the time of your application or have other outstanding debts.

What can I use for collateral?

According to the New Zealand Companies Office, collateral can include a wide array of items, from motor vehicles to ostriches!

At Superloans, we provide a comprehensive list of collateral items that can be used as loan security. These items include:

  • Audio equipment
  • Cars, motorbikes, boats, and other vehicles
  • Computer equipment
  • Fine art
  • Gaming equipment
  • Home entertainment
  • Jewellery
  • Luxury watches
  • Musical equipment
  • Photographic gear
  • Sports equipment
  • Tools
  • Vehicle equipment

What happens to my collateral?

When you offer an asset as collateral, you’re offering a payment on your loan in case you are unable to make the payments. If you fail to pay off your loan, your lender will assume ownership of your collateral and sell it to recover the cost of the loan. If you successfully pay off the entirety of your loan, your collateral is returned to you!

Find a lender that will handle your collateral with respect

For secured loans like pawn loans, your collateral item is held by your lender until your loan repayment is complete. You’ll want to find a lender with a proven record of respecting borrowers’ collateral. At Superloans, you can count on competitive rates secured by your collateral and know that your items are in safe hands.

Contact Superloans today to learn more about how secured loans can benefit your financial future!

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