One of the basic principles of lending in a bank is to secure a loan. Assuming credit obligations, the borrower pledges any property to the bank.
Any loan issued by a bank has its own specific characteristics and features. So, loans can be secured, which, in most cases, means collateral.
What is loan security
If the borrower takes a large loan from the bank, then the credit institution requires a certificate of income from him, and also applies collateral, insuring his own risk. Collateral can be basic or additional. The first covers the entire loan amount, taking into account the accrued interest for the use of funds. In this case, the property of the borrower can act as collateral: a car, real estate, securities.
Additional security implies the involvement of guarantors in the process - individuals or legal entities. In this case, an official document must be drawn up - a surety agreement. With a large loan amount, several people or organizations can act as guarantors.
What is a secured loan for
A secured loan can be issued for the following purposes:
- business development;
- purchase of real estate or a vehicle;
- an increase in the company's fixed assets;
- for urgent needs.
In the latter case, a large-scale consumer loan is issued. The amount of a secured loan is directly related to the value of the collateral or the effectiveness of other guarantees. The term for which a loan is issued depends on its type. So a car loan is issued for up to 10 years, consumer loans for 5-7 years, a loan for the purchase of real estate - for a maximum of 30 years. In the latter case, the limit is the age of the borrower, which he will reach by the time the loan is repaid (the limit is 75 years).
Agreement and loan application
A secured loan agreement is drawn up in the form adopted by the credit institution and signed by both parties to the transaction. The pledge agreement contains information on its subject matter, valuation, obligations and rights of both parties. If real estate acts as a tax, then such an agreement requires notarial confirmation.
In order to obtain a secured loan, you must:
- submit an application at the office or on the official website of the bank;
- provide the necessary documents (passport, income statement, documents for the subject of pledge);
- find a guarantor (if necessary).
The loan application contains only general information. Even if the bank accepts it, in the absence of some documents or if the conditions are not met, the credit institution has the right to refuse to provide a loan.
