Loan collateral – what can be a mortgage collateral?

Loan collateral is an action aimed at guaranteeing the lender (bank) the possibility of effective debt collection from the borrower, which is served by various types of collateral. The mortgage is secured by establishing a mortgage on the property.

A consolidation loan or a cash loan may have other collateral, for example, a bank pledge on movable items, the purchase of which is financed by such a loan.

What is the loan collateral?

What is the loan collateral?

Bank loan collateral is a tool that guarantees the lender (e.g. bank) the return of receivables from granted loans. At the same time, loan collateral allows the reduction of individual credit risk, i.e. the risk that results from a failure to repay a single liability.

There are various types of loan repayment collateral acceptable to the bank when granting financial obligations.

For what purposes do banks require collateral for a loan?

If for various reasons, the borrower is unable to pay the loan obligation himself, based on his own creditworthiness, the loan collateral will be activated and the bank will be able to assert its rights through it.

In order to reduce their credit risk, banks apply appropriate measures to secure loan repayability. One of them is to require the borrower to submit legal collateral for the loan.

The overriding goal related to establishing a loan repayment guarantee is to provide the bank with a refund of amounts due under granted loans and bank guarantees, irrespective of the circumstances if the debtor does not settle his liabilities within the agreed time.

This is to ensure the bank’s effectiveness in pursuing claims and to increase the value of assets from which the bank can satisfy.

Does the loan collateral affect its cost?

By using appropriate loan repayment security, it is possible to reduce the borrower’s costs.

The total cost of the loan will be lower due to the fact that the bank bears less credit risk in connection with such commitment to the customer.

What are the legal types of loan collateral?

bank

Legal collateral for a loan is a series of collateral for loan repayment. They are divided into personal and material security.

Material security limits the liability of the person providing security to individual components of his property, and personal security is characterized by the personal liability of the person providing the security, which means that he is responsible for the debt with all his property.

What factors influence the choice of loan collateral?

When determining the loan repayment collateral, banks take into account many different criteria, including:

  • type of loan,
  • loan liability amount,
  • loan period,
  • the real possibility of satisfying the bank’s claims from the accepted collateral in the shortest possible time,
  • the borrower’s economic and financial standing,
  • credit risk is borne by the bank,
  • features specific to the type of security,
  • borrower’s legal status,
  • the expected workload of bank employees,
  • security costs for the bank and the customer.

Legal collateral for a loan cannot be treated as a substitute for the customer’s creditworthiness.

Personal loan collateral – how does it work?

Personal loan collateral - how does it work?

The essence of personal loan repayment collateral is that the borrower and the persons providing the loan repayment guarantee are responsible for the resulting debt with all their assets.

In the absence of repayment, the creditor may apply for capital that was accumulated by the borrower and guarantors both before and after the loan was granted. Personal loan collateral can take many different forms and affect not only the borrower but also third parties.

What forms of personal protection are there?

The group of forms of personal collateral for bank loan repayment includes such collateral as:

  • promissory note bail – obliges the guarantor on a par with the issuer of the promissory note to repay the loan on due dates;
  • surety under civil law – the guarantor undertakes to repay the loan if the borrower defaults;
  • bank guarantee – an obligation on the bank to pay the sum of money to the lender corresponding to the amount of outstanding loan installments, together with interest and costs due, unless the borrower defaults on his obligations to the creditor;
  • debt assumption – a third party takes over the debt and becomes the borrower;
  • assignment of receivables – an agreement between the borrower and the bank granting the loan, under which the borrower transfers to the bank his rights to receive a specific sum for goods or services sold;
  • joining the debt – a third party joins the existing borrower who acts as a joint and several debtors;
  • promissory note – a document that can have a blank form and then only contains the signature of the promissory note issuer, without specifying the bill amount and the due date.

Quick loan – check how to take quick loans

Do you need an instant loan? Get to know the quick loans offer and take advantage of additional financing.

When do you need an express loan?

money

There may be situations in your life when you will need extra money immediately. Sometimes they can be related to unforeseen events in personal life – illness, renovation of flat or financial problems.

In other cases, they result from the need of the moment – you come across a unique promotion, you decide to buy last minute holidays or give special gifts to your loved ones.

Burning situations require you to make quick decisions. You can’t afford to go through complicated and lengthy bank credit procedures. You need cash immediately. Where to get her

Good to know

When applying for a bank loan, you will need to provide a number of data and documents. You will need your ID card and earnings certificate. You will also need to prepare and submit a loan application.

A bank employee can contact your employer to confirm your workplace. The bank will also check your GFI history and assess your credit standing. The whole process can take up to several weeks.

Loan – a quick way to get money

Loan - a quick way to get money

A good solution in such a situation may be a quick loan immediately, which you can get online or at the headquarters of the loan company. How long does the procedure for granting this type of loan take?

Quickly completed forms and a minimum number of formalities mean that customer verification is much more efficient than in the case of bank loans.

Most non-bank companies offer a quick loan in 15 minutes. Just a quarter of an hour can be enough for the money to reach your hands or be transferred to your account.

Online loan – quickly and without leaving your home

Express loans are granted online. To receive financial support, all you have to do is fill out the appropriate application on the loan company’s website. The form usually consists of several dozen short questions, thanks to which it is completed quickly and efficiently.

After submitting your completed application, you will receive a loan award within a few minutes. If it is positive, the money will go to your account.

Advantages of quick loans online:

Advantages of quick loans online:

  • you get money without leaving your home,
  • the money goes directly to your account,
  • you can complete the application at any time.

Good to know

You need a personal bank account to take advantage of a quick online loan. It is not possible for the money borrowed to be transferred to another person’s account.

Loan immediately – at the company’s headquarters

If you do not have a bank account or simply want to receive cash in hand, you can go to a loan company outlet. During the meeting with the consultant, you will complete the application and confirm your identity using your current ID card. If your application is approved, you can receive the money right away.

Advantages of express loans at stationary outlets

  • you do not need to have a bank account,
  • the adviser will help you complete the loan application,
  • You can receive money immediately – without waiting for a transfer.

Do you know that…

Quick loans can be used for any purpose. You do not have to specify what you intend to spend the borrowed money in the loan application or during the conversation with the adviser.

A quick loan – for everyone?

Quick loans are granted to persons over 18 years of age and have a valid ID card. Some loan companies may check your credit history in GFI or other debtors’ databases. If you have a history of late repayment obligations and you have an unfavorable credit history, the solution is an instant loan without checking your bases.

A quick loan – where to find the best offers

A quick loan - where to find the best offers

Before you decide to use a quick loan, analyze the conditions offered by various non-bank companies and choose the best offer for you. Thanks to this, you can not only save but also avoid problems with paying off your debt.

Of course, in a situation where you need money immediately, you do not need to browse and compare hundreds of offers available on the market. It would be a waste of precious time! The best solution is for you to use a web comparison engine such as Camille.

Its operation is fast and intuitive. All you have to do is enter the amount you want to borrow and choose the repayment period – for example, a quick loan for 90 days, for USD 3,000. The comparison engine will show you a list of available offers, together with the number of installments and the cost of the loan.

Loan period – more beneficial extension or shortening the repayment period?

The final cost of the loan consists of many parameters. These include loan amount, interest rate, additional costs, as well as the loan period. We have no influence on most of them, but we can manipulate the repayment period, i.e. choose a shorter or longer one. Thanks to this, depending on your needs, we will reduce the installment amount or the number of installments. But what will turn out to be a more advantageous solution: extending or shortening the repayment period?

If you are going to take out a cash loan, you probably wonder what repayment period will be most profitable for you. Do you always have to stick to it stiffly? And what if you want to shorten or extend the loan period?

By all means, you have such an opportunity, especially in the case of a mortgage loan, which can be repaid up to 35 years.

Loan period – definition

Loan period - definition

The loan period is simply the time when the borrower is required to repay the loan. This parameter has a big impact on the amount of installments. Typically, the longer the loan period, the lower the installments.

This does not mean, however, that the loan itself will be cheaper, moreover, its costs may even increase significantly. Most banks allow you to shorten or extend the loan period. Often, however, this involves additional fees.

In the case of loans for smaller amounts, the loan period is significantly shorter than in the case of a mortgage loan. The repayment period is partly dependent on the amount of our loan. It is logical that when we take out a loan for USD 200,000, we need more time to pay it back than when we borrow only USD 20,000.

KNF recommendation on the optimal loan term

The Polish Financial Supervision Authority (KNF) requires banks to recommend a repayment period of up to 25 years to retail clients. However, if the borrower wants to extend it, he gains such a possibility, however, as per the PFSA recommendation, the bank should not grant a loan with a repayment period exceeding 35 years.

Why is this happening? Even a decade ago, loans with repayment periods of up to 40-50 years were not surprising. An excessively extended repayment period causes a large increase in the borrower’s total costs. What’s more, it is associated with high risk for both the bank and the borrower, because it is characterized by increased sensitivity of installments to changes in interest rates.

Important!

The maximum loan term is 35 years and it is not possible to extend it!

What loan period should you choose?

What loan period should you choose?

Wondering what loan period to choose? Preferably one that will be tailored to your financial capabilities. However, this is not so simple.

You must also take into account creditworthiness. Moreover, the banks set the maximum age of the borrower which he will reach when the last installment is repaid. This means that when you are 55 years old, you can not count on a loan with a repayment period of 30 years.

Maximum loan term – advantages and disadvantages

Maximum loan term - advantages and disadvantages

Is it worth choosing the maximum loan period? It depends. This solution has its pros, although it seems that there are more disadvantages in this case. The main benefit is the lower installment. Therefore, if the installment amount is of key importance to you, then a long loan period will prove to be a good choice.

However, you must know that the overall cost of the loan will also be higher in this case. What’s more, for the whole period of its duration, you may have a problem getting another loan because your creditworthiness will decrease significantly. Why? Each financial liability affects the amount of creditworthiness, which means that you must spend part of your savings on paying installments.

The maximum loan period is a necessity for many people, because if you shorten it, your creditworthiness will also decrease. Of course, this does not apply to everyone, but with lower earnings, the bank may think that you can only pay the lowest installment.

It is worth following the example of the total cost of a mortgage with a maximum loan term of 35 years.

  • Loan amount: USD 200,000
  • Loan period: 35 years
  • Credit interest rate: 5%
  • Equal installments in the amount of: USD 1009.38
  • Total interest cost: USD 223,937, 35

Therefore, when deciding on a mortgage for 35 years, you have to pay back a huge amount, which can equal the doubled value of the borrowed amount. Below you can see how much less you pay off when you decide to take a loan for 20 years.

Shorter loan period – advantages and disadvantages

Shorter loan period - advantages and disadvantages

Shorter loan period means higher installments, which will not suit everyone. However, you get more time to pay back, and thus, you leave more money in your household budget. It is also a good step if you want to take out a second mortgage soon and you want to maintain your creditworthiness.

Let’s check how shorter the loan period is against the background of the above calculations for the maximum repayment period.

  • Loan amount: USD 200,000
  • Loan period: 20 years
  • Credit interest rate: 5%
  • Equal installments in the amount of: USD 1319.91
  • Total interest cost: 116,778, USD 75

So, as you can see, the installment is significantly higher in this case, but if you decide to pay back by 15 years (in this example you have compared a loan for 20 and 35 years, you will even get over USD 100,000).

Can I extend the loan period?

Can I extend the loan period?

Many borrowers are wondering if it is possible to extend the loan period and whether it is worth doing at all. What is it then? If you want to extend the loan period, you have the option. Thanks to this, your monthly installment may decrease and you will avoid financial problems.

However, you must know that the total loan amount will increase then. In addition, before making a decision to extend the loan repayment period, you should check the maximum possible loan period with your bank.

If you took out a loan for 30 years and the maximum loan period is exactly the same, you can no longer extend this period.

How to extend the loan period?

How to extend the loan period?

To extend the loan period, consult a bank adviser. It is best to do it directly at the facility, then all doubts will be dispelled on the spot. We can also get this information on the hotline.

You will also need to submit an appropriate document, i.e. an application for extending the loan period. You must remember that such a change will also affect other parameters of the loan, such as its total cost. It happens that you need to attach other documents to the application.

Application for extension of the loan period

If you need more time to repay the loan, you must apply for an extension of the loan period at the bank where you signed the loan agreement. Then you will need to enter an annex to the contract, which may involve an additional fee.

The bank may re-check your creditworthiness, and thus, require you to provide the documents required when applying for a loan, i.e. income certificates.

It is therefore worth to attach such a document to the application. Moreover, this document should contain information on why you want to extend the loan period.

Is it profitable to shorten the loan period?

Is it profitable to shorten the loan period?

What about shortening the loan period? Does this solution make sense? Is it profitable to shorten the loan period? The shorter loan period is mostly beneficial for the borrower.

First, the total cost of credit will then be lower, and secondly, it will be free from installments, which often weigh not only on the home budget, but also on the psyche. Thus, it will gain funds that it can spend on a completely different purpose.

Shortening the loan period, however, sometimes involves an additional fee. So before you choose a specific loan offer, check whether shortening the loan period will cost you a lot.

Loan period and age of the borrower

What is the relationship between the loan period and the borrower’s age? As it turns out very large. Each bank determines the maximum age of the borrower at the time of signing the loan agreement. Usually with a maximum loan period (35 years) it is between 35 and 45 years.

A shorter loan period is no longer associated with such large age restrictions, which is why a 10-year period may as well get a 60-year-old in 10 banks.

Loan period and cost of credit

Loan period and cost of credit

It is worth looking at one more issue and checking how the loan period affects the cost of the loan. We have already mentioned several times in this article that the longer the repayment period, the higher the total cost of the loan.

What’s more, extending the repayment period often involves additional fees, such as life or unemployment insurance. Therefore, if it is not necessary, it is better to avoid such a solution.