The most non-risky type of lending for a bank is collateral lending. When granting money on credit against bail , he not only relies on the integrity and reliability of the client, but also has the guarantee that he will return the loan. If there are problems with loan repayment and the terms of the contract are violated, the bank can count on the property that was pledged to be sold by bailiffs and the amount of the debt will be repaid. For the borrower, a lot of peace means a creditor bank.
Benefits of Collateral Lending
- The most tangible plus is a reduced interest rate (as opposed to unsecured loans). If consumer loans that are not secured by anything cost about 30–40% of the bank’s loans, loans with guarantors – 20–30%, then a secured loan is the lowest interest rate: from 10 to 20% per annum.
- The second advantage is that when obtaining a loan on bail, it becomes possible to count on a longer borrowing time than with a regular cash loan. If the client pledges a vehicle or any other mobility, the borrowing period will be from 3 to 7 years. It is very beneficial to take a loan secured by real estate . In this case, the duration of the credit confidence will be from 10 to 20% per year.
- The third indisputable fact confirming the benefits of collateral lending is the availability of borrowing prices more than in the absence of collateral. If a bank client takes a regular loan according to the relevant documents (passport, income statement), then the loan will be no more than 50 000 – 100 000 UAH. Another thing is to come to the bank with guarantors. Then the amount of borrowing will be from 100 000 to 250 000 UAH. Thus, it is not difficult for a private person to take a loan of several hundred thousand UAH. for a period that will be more convenient for him.
A mortgage (a loan secured by real estate) is not only a purchase of housing, it is a pledge of any real estate for obtaining borrowed funds. A pledge may be a house, a garage, an apartment or a piece of land. The purpose of mortgage lending is to purchase your own real estate or to receive a cash loan for spending on urgent needs.
A secured loan requires additional costs.
The first not very pleasant surprise that a borrower may face is additional costs during the execution of this seemingly very profitable transaction. Often, when money is urgently needed, the lender does not think that he will have to pay interest, and not small. But that’s not all. He will also have to pay for the following:
- An independent assessment of the market and collateral prices of the property, which he decided to give on credit against bail (from 0.1 to 3% of the value of the assets or a fixed fee (several thousand UAH).
- Property insurance of the subject given on the security for the entire term of the loan agreement. If it is a car, then the percentage will be from 7 to 15% of the amount of its value. If this is an apartment, then from 0.3 to 1.5% of the amount of its value.
- To pay for registration and for state fees when registering a mortgage agreement.
- For assistance in drafting contracts, as well as for legal support of the procedure. That is – the help of a qualified lawyer, realtor or other consultant is paid. They will be required. In total, services cost from 1000 to 20 000 UAH. It all depends on the size of the transaction.
- For additional information and extracts. Also for notarization of documentation (from 200 to 2000 UAH).
- Based on all this, you can immediately understand that any loan will cost a pretty penny. But when financial means or real estate are urgently needed, then you take a loan without hesitation from the seemingly small nuances.
It is worth noting that the borrower expects not only one-time expenses. He will have to pay extra for his personal insurance. There will certainly be costs for various commissions: the issuance and reception of cash, account maintenance and other fees. As a result, you can save only if you study all the details of credit conditions. Then the overpayment will not be so big.