If you’ve ever had to go into borrowing, credit, and other financing-related issues, then you’ve definitely had to come across the concept of a mortgage loan. Collateral against collateral most often means that a particular loan is issued against a pledge of real estate or against a car collateral.
If you are considering drawing up a quick credit or some other type of credit, it is valuable to inform yourself before choosing a loan to make the best decision. The concept of a mortgage loan is most often associated with mortgage or car loans, but nowadays almost all types of loans offer the possibility of receiving a loan in exchange for a pledge.
What is a Loan against Collateral?
In most cases, a mortgage against a mortgage means a greater chance of obtaining the desired credit in order to be able to meet the desired goal faster. In most cases, mortgage loans are used for the purchase, construction, renovation or improvement of real estate, but in some situations people use the option to borrow in exchange for a mortgage to clear utility bills or start and develop a business.
The reasons for having a loan can be many and varied, not always having a pledge to get a loan. It depends on the size of the loan you need, your solvency and the conditions of the credit institution. Often the need for a pledge depends on the desired amount of credit.
What is a Pledge?
The most common types of collateral are real estate and cars. The collateral in its essence acts as a guarantee to credit institutions that the person will be able to repay the loan and if the person is unable to do so, the credit institution has the right to alienate the pledged. Pledge can be a house, apartment, plot, car or valuables. The essence of anything, owned and valuable by the borrower.
Four types of collateral are recognized in the Republic of Latvia:
- Pledge of collateral – real estate collateral is transferred to the creditor for use on the loan repayment period. After the loan is repaid, the collateral is returned to the owner’s use.
- Mortgage collateral – a loan is issued in exchange for ownership of the mortgaged real estate. The property will remain at your disposal for the entire loan repayment period, but if you fail to repay the loan, the credit institution has the right to dispose of the property.
- The pledge is put at the disposal of the creditor until the loan is repaid. Once the loan is repaid you will be able to get back the mortgaged property.
- Pledge – a property owned by a merchant or a legal person that is pledged to receive the necessary credit. A commercial pledge may be a bodily or non-physical thing owned by a merchant or a legal person. A pledge can also be a company as a community of things.
In the Latvian credit market, mortgage collateral or hand collateral is used most often, where the loan is issued in exchange for movable or immovable property.
What to remember when taking a loan against collateral
When signing a loan against a mortgage, it is worth remembering some important factors:
- It is possible to pledge only the movable or immovable property owned by you when drawing up a loan against the pledge. You must be the legal owner of the pledge. Pledging a joint movable or immovable property will not be possible. For example, to be able to pledge a spouse’s owned land, the car or apartment will require the consent of both.
- Remember that the pledge must be worthy enough. In order to receive a loan against the pledge, the creditor will assess the value of the pledged object against the requested loan amount. This approach is used to ensure that the creditor is insured against the loss if the person is unable to repay the loan. The loan will have more favorable conditions if a new car or new apartment is pledged as these objects have a higher value. If you want to pledge a car or an apartment with a low monetary value, it may be more difficult to get credit. You can discuss any matters related to the pledge and pledge with the chosen creditor, as the terms of the credit against the collateral differ depending on the individual guidelines and conditions of the credit institution and each creditor.
- If the loan is not repaid, the creditor is entitled to dispose of the pledged item. That is why it is very important to evaluate your ability to repay the loan before borrowing. If the loan is not repaid according to the contract guidelines, the creditor is fully entitled to the mortgaged property to cover the loan-related losses.
In which cases is the credit against the collateral used?
The possibility of receiving a loan against a pledge can be used in several cases, but most often people take loans against collateral when buying a car or home . In these cases, the loan is issued on the basis of several factors, not just the value of the pledged object. The loan interest rate is adjusted based on the value of the pledged item, the person’s solvency, credit history and other factors determined by the credit institution. In its essence, the collateral is the collateral to the credit issuer that the borrower will repay the loan and if it is not done, the creditor will be able to cover the loss through collateral.
Often it is not possible to get a loan for the purchase of a home or car without collateral, because the loan amount in these situations is several thousand euros. If a person who wants to get a loan is neither a car nor a mortgage, then it is possible to pledge the dwelling or the car that the person is going to buy for the loan. In these cases, the person may use the mortgaged car or live in the mortgaged dwelling, but the person will acquire ownership of the object only after repayment of the loan.
Loan against real estate collateral
A loan against a real estate collateral means that the real estate serves as collateral so that the person can obtain the required credit. Mortgage lending is a good solution when you need to borrow large amounts of money, because a mortgage on a real estate mortgage will almost always be a better option than several short-term loans or consumer credit. Real estate loans are usually issued at a lower interest rate and have a longer repayment term of up to 20 years.
Credit against car collateral
A car loan can take many forms and forms. One of the most popular car loan types is car leasing. When drawing up a car leasing, a person acquires a car as a creditor and acquires ownership of the car by gradually repaying the loan. This is the most common option if a person wants to buy a new car.
The second most common type of car loan is a car mortgage to get up to 90% of the car’s value as a credit. This is a common form of borrowing in situations where a person needs a relatively large amount of money.
We have gathered more detailed information on loans against car collateral. You can read more about credit against car collateral here .
Conditions for receiving a loan against collateral
Not only the value of the collateral object, but also the other factor is of great importance when receiving a loan against collateral. These factors may vary depending on the credit institution and the desired amount of credit. In the case of a pledge on a pledge, its cost and interest rate are most often calculated on the basis of the aforementioned factors.
The creditor will pay particular attention to:
- Credit object value
- The borrower’s solvency
- Credit history
- Amount of the loan
What will be needed to get a loan against collateral?
You must be at least 18 years of age and the legal owner of the pledged property to sign a loan against a mortgage, which means that you will need to show the following when drawing up a loan:
- ownership document (Land Register, registration documents)
- identity document (passport or ID card)
Of course, the factors mentioned above (the value of the pledge, the person’s solvency, credit history, etc.) are also important.
Obtaining a loan against collateral is usually also possible for people without a job or with a damaged credit history. It is not advisable, but situations are different and if you have come to a particularly difficult situation, a mortgage loan can be the solution.