Character loans are extensions of funding that are granted based on factors other than the declaration of collateral. Generally, a character loan is granted when the lender determines that the loan will be repaid in a timely manner without the need for some sort of security. Signature loans are one common form of the character loan.
A lender may choose to extend a character loan based on a couple of factors. First, the lender may be very familiar with the reputation of the borrower, and have every confidence in the ability of the applicant to repay the loan according to terms. This approach was often employed with long standing clients of local banks in times past, and continues to be somewhat common in many smaller bank chains. The lender often will have dealt with the borrower in the past, and have found the business relationship to be mutually beneficial. When this is the case, there is usually not any problem in obtaining the character loan.
The second factor has to do with the personal credit history of the applicant. Even if the lender has not had prior business dealings with the borrower, it may still be able to obtain a character loan based on this consideration. By checking the credit history of the individual, the lender can get a good idea of the current level of indebtedness in comparison to income and how well the applicant keeps up payments on current debts.
Persons who are able to obtain character loans tend to exhibit a great deal of business and financial integrity. The dedication to repaying debts on time and keeping finances in order will often increase the confidence level of many lenders, and at least open the door for negotiations. When this high level of credit worthiness is coupled with possessing an excellent reputation in the business community, the potential for being able to obtain a character loan is very good.
Tuesday, February 5, 2008
A collateral loan
A collateral loan is also called a secured loan. It is a loan obtained from a banking or other financial institution, where in exchange, the creditor may sell that which is offered for collateral if the loan is unpaid. A collateral loan is often offered at a lower interest rate than an unsecured loan, because there is a guarantee of repayment should the borrower default on the loan.
A collateral loan may use different things to secure the loan. Often people use stocks or bonds to establish a collateral loan. They can use their ownership in property, where a portion of perhaps a home, or a piece of land, is set up as collateral. If the borrower defaults, he must sell the property to pay back the loan, and the lender has rights to sell the property also, even if only a portion of the full value belongs to them. In these cases, a lender would sell the home, and give the previous owner the monies not offered on collateral.
A collateral loan may also be based on expected collateral, like the expected return on a harvested crop, or on an investment. Occasionally, one can use property like high-valued jewelry as collateral, or other high-valued goods. This is rare, as most collateral loans are based on paper assets, or on real estate.
If the collateral given decreases in value and the borrower defaults, he or she will still be responsible to repay the amount at which the collateral was previously assessed. For example, a person borrows $100,000 on a home of the same value. If the home decreases in value, say to $75,000, the borrower must still pay back the full amount, as dictated by the terms of the collateral loan. If a borrower has defaulted on the collateral loan, his or her home will be sold. However, the borrower will still owe the lender $25,000. This may require the borrower to sell more possessions or enter bankruptcy.
In most cases, people will not borrow to the full value of a possession offered as collateral to avoid the circumstances described above. Instead, the collateral loan is usually only a portion of the full value of a possession, or of paper trading like stocks and bonds. People with a number of high value items, properties, or stocks and bonds can of course get larger collateral loans. However, with any loan, it is best to borrow only what one needs, since interest rates will still mean a higher payback than the actual money borrowed.
A collateral loan may use different things to secure the loan. Often people use stocks or bonds to establish a collateral loan. They can use their ownership in property, where a portion of perhaps a home, or a piece of land, is set up as collateral. If the borrower defaults, he must sell the property to pay back the loan, and the lender has rights to sell the property also, even if only a portion of the full value belongs to them. In these cases, a lender would sell the home, and give the previous owner the monies not offered on collateral.
A collateral loan may also be based on expected collateral, like the expected return on a harvested crop, or on an investment. Occasionally, one can use property like high-valued jewelry as collateral, or other high-valued goods. This is rare, as most collateral loans are based on paper assets, or on real estate.
If the collateral given decreases in value and the borrower defaults, he or she will still be responsible to repay the amount at which the collateral was previously assessed. For example, a person borrows $100,000 on a home of the same value. If the home decreases in value, say to $75,000, the borrower must still pay back the full amount, as dictated by the terms of the collateral loan. If a borrower has defaulted on the collateral loan, his or her home will be sold. However, the borrower will still owe the lender $25,000. This may require the borrower to sell more possessions or enter bankruptcy.
In most cases, people will not borrow to the full value of a possession offered as collateral to avoid the circumstances described above. Instead, the collateral loan is usually only a portion of the full value of a possession, or of paper trading like stocks and bonds. People with a number of high value items, properties, or stocks and bonds can of course get larger collateral loans. However, with any loan, it is best to borrow only what one needs, since interest rates will still mean a higher payback than the actual money borrowed.
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