A loan can easily be closed. Repayment terms are set and the amount of the repayment is often fixed. In financially uncertain times, banks and lenders are more hesitant to issue loans. In order to accommodate you as a customer, financial institutions can ask for a guarantee. In this way they provide more security for themselves. But is a guarantee always a requirement?
A loan with a guarantee
With a guarantee you provide more security at the financial institution where you lend. You provide a financial guarantee with the aid of a guarantee. With many loans, however, you are not obliged to give a guarantee. Nevertheless, your lender may ask for a deposit. This guarantee may then consist of securities or a property. You can think of cash receipts, shares or bonds. These are temporarily put in custody to the lender during the term of the loan. If you as a borrower no longer want or can not repay the money, the lender has the possibility to sell or collect the financial resources from the guarantee. In this way, the lender always has the guarantee of a repayment of the loan, or in the form of money, or in the form of a guarantee.
Loans with a guarantee
One of the most well-known loans with a guarantee is the mortgage loan. This loan can not be closed without a guarantee. When a mortgage is taken out, a guarantee is therefore always mandatory. The mortgage loan gives the bank a lot of security. Your house is seen as collateral. If you are unable to repay the loan on time, the lender becomes the owner of the collateral, so that the loan can still be repaid. The lender then has the opportunity to sell the collateral, in order to be able to repay the loan.
The car loan also requires a guarantee. Car loans often have a lower interest rate than other loans, such as the personal loan. This is because the car loan requires a collateral. To request a car loan, you must prove that you want to use the loan for a car. The agreement usually states that the car serves as collateral (guarantee) for when the installments can not be paid. Because of this type of security interest rates can remain lower and the lender always has a certain form of payment.