We all pass through some moments in life when we need money urgently. This can be because you need to repay something right away. Or it might be because of an unexpected expense that crops up, or if you need some help getting through to your next pay day.

Whatever the reason, it is worth noting that BT Financial Group’s research showed that 1 out of every 5 Australians has no cash savings to fall back on in an emergency. If you are in this situation then could collateral loans help you?

What are collateral loans?

Collateral loans can also be called a secured loan. A secured loan is where you are given a loan based on the secured amount against your asset of value, this works the same way as  a collateral loan.

We can start by understanding the basics of this type of loan. Quite simply, it is when you borrow money and use one of your assets to help you to do this.

You may already know that traditional bank loans are either secured or unsecured. This means that the money is loaned by the bank either with or without the back-up of an asset secured against it.

When it comes to collateral loans, you are directly borrowing against your assets. While this might sound similar to a secured loan, there are some crucial differences for you to be aware of.

The key difference is that you don’t need to prove your income or your credit history. You are borrowing solely on the strength of your asset, rather than this being an additional piece of security for the lender.

What are the benefits of using a collateral loan?

There are some clear benefits to getting a collateral loan. The first one is what we just looked at; the fact that your income and credit history aren’t taken into account.

Therefore, borrowing against your assets is the easiest choice when you are going through some financial problems. The average credit score in the country is around 750, out of 1200, according to some sources, but this figure can be affected by any one of a number of issues.

If your credit score is poor then getting a bank loan can prove to be very difficult, if not downright impossible. This is where a collateral loan could save the day, by allowing you to access funds anyway.

Another advantage is that this is an extremely quick and painless approach. There is no messy paperwork to sort out or delays while all of your history is being checked. If you need some money urgently then you can arrange this car loan in a matter of hours.

Do a lot of people get collateral loans?

If you think this sounds like a sensible approach then you may wonder why more people don’t already do it. The truth is that many people do. Borrowing against assets is one of the oldest types of financial transactions in the world.

Among the most famous examples, we can see that in Medieval England both Edward III and Henry V borrowed against their crown jewels in order to fund wars. The popular children’s song ‘Pop Goes the Weasel’ is said to be about someone borrowing money to buy food by using their coat as collateral.

This is a method of getting a loan that is thought of as being especially popular in tough economic times. Yet, these days it is commonly seen as a fast and simple solution for anyone to turn to. There is certainly no need to only consider doing it when you are left with nowhere else to go.

Choosing to borrow against your assets is a sensible solution that makes life easier. You don’t need to worry about credit scores and lengthy application forms. This is why so many people take out collateral loans time after time.

What kind of assets can I use to get a collateral loan?

The next key question is around the assets that you need to access this sort of loan. While we have seen jewels and coats used in the past examples, there is a simpler and more effective type of asset that many people currently opt for.

With over 19 million cars in Australia in 2018, this is the type of asset that plenty of people can turn to. One of the advantages of doing this is that the value of a car will often be more than enough to cover the loan amount required.

This method isn’t just limited to family cars, though. It is also possible to borrow against caravans, motorbikes, trucks and even machinery. You can also find out how much it would be possible to borrow against other assets, such as jewellery or luxury watches.

Basically, if you have something that is worth money then you can find out whether it is possible to use it as collateral for a loan. There is no harm in asking. Once you find something that can be used in this way, you can borrow against it over and over again, if necessary.

Could I lose my assets?

It is always wise to carefully consider the full implications of any financial transaction before going ahead. As with any type of loan, you need to pay it back or risk some sort of consequence.

In the case of collateral loans, you could lose the vehicle or other asset if you don’t pay it back on time. This is why it is important to go into a loan of this type with a clear plan for how and when you pay it back.

Naturally, the vast majority of these cash loans go smoothly. The borrower uses the cash for the reason they had in mind, pays it back on time and then frees up their asset again without any fuss.

Summary

Collateral loans have long offered people a simple, effective way of using their assets to borrow money. Whatever reason you have for needing to get some cash in your pocket quickly, this can turn out to be the smartest way of doing so.

Get in touch with Hock Your Ride and we will guide you through the process smoothly.