If you are in the process of financing a new home, the last thing that you want to do is to apply for an additional line of credit before your mortgage application is complete. But what happens if you find yourself in need of a short-term loan during this process? You could always apply for a collateral loan. Not only will this provide you with quick cash, but it also will not show up on your credit report.
What Is a Collateral Loan?
A collateral loan is a loan that is given to you in exchange for something of value that you own such as jewelry. If you do not repay the loan, the ownership of the items you are using as collateral reverts to the lender.
Since this loan is secured by your item of value, the lender is taking less risk than they would be with an unsecured loan. Because of this, the lender is often willing to offer you a lower interest rate than they would for an unsecured loan. Two of the most common types of collateral loans include your home and auto loan.
How Much Money Can I Get with a Collateral Loan?
The amount of money you are able to get will depend on the value of what you are using as collateral. Because the lender always has the risk that you may not reclaim your item, they will usually only loan a certain percentage of the item's value. Offering you less than the piece is valued allows the lender to be able to resell the piece for a profit if it is not claimed. The percentage they give you will vary based on the lender, as well as the demands of the market.
What Types of Fees Will I Have to Pay for a Collateral Loan?
Just like with a traditional loan, you can expect to pay interest, or a finance charge on a collateral loan. These rates will often depend on several different factors. These include
- your lender,
- the amount of the loan,
- the interest rate you agree to,
- the type of transaction, and more.
The state in which you make the transaction must also be factored in. This is because the maximum interest rate and the usury laws vary from state to state. Some states even offer numerous exceptions to the usury laws and will allow an establishment to charge a service charge in addition to the interest rate. In states where this is not capped, lenders are able to charge you as much as you are willing to agree to.
In addition to the interest and service fees being charged on your loan, you may also be charged other types of fees. Some of these are
- loan initiation fees
- storage fees
- ticket fees, and more.
Will All of the Terms and Conditions Be Clearly Outlined?
The Truth In Lending Act requires lenders to fully disclose all of the terms and conditions of your loan in writing. Make sure you understand the entire terms of the loan before you enter into an agreement.
Ensure you understand how long the loan is for, how much your payments will be, and when your payments are due. Always remember when the terms of your loan will end, because the lender will be able to keep your valuables at that time if you are unable to repay your loan.
What Do You Need to Do Next?
Before you make a collateral loan with the first lender you encounter, shop around. This is especially valuable advice if you are using fine jewelry or designer watches as your collateral. Find a lender who has the specialized knowledge needed to appraise your items as well as one who stays in tune with the true market value of the pieces you are offering as collateral. This will give you a higher appraisal value, which in turn will compute to a higher loan value.
One of the best parts of a collateral loan is that the entire process can be performed very quickly. You will not have to fill out an application or wait for it to be approved. You will usually have the money you need within a few hours if not sooner. Look for collateral loans in your area to get started.