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Buying and selling loans are a common phenomenon happening in the financial market. The payment of loans has lot many factors to be considered. To get a loan, the borrower and the creditor has to know several aspects of loan. An important word commonly heard here is collateral.

Collateral is a necessary element that a recipient has to keep with him to get a loan. This designation is unavoidable for the recipients to get a loan. The simplest meaning of collateral means the asset which can be pledged as a security to the creditor by the borrower. The recipient has to pledge the collateral according to the value of the loan. This is taken as a security in case the recipient fails to pay back the loan. In such cases, the collateral will be owned by the entity which issued the loan.

There are several instances where collateral is used to get loans. The most familiar example is the real estate purchases. Here the property itself will act as collateral until the loan is paid in full. Here the financial institution will exhibit interest in the real estate property. This will continue until the mortgage is completely paid by the borrower. If there are outstanding loans to be paid by the homeowner, he should accept the transfer of the authority of the property to the institution that granted the loan.

There are vehicle loan giving companies. Here the collateral will be the vehicle itself. The vehicle will be kept as a security until the loan is paid in full. This can cause a situation that in case the borrower can’t pay back the loan, the vehicle will be seized by the financial institution. Usually to make sure that they never have to incur loss in this business, financial institutions give loans with the same amount of the market price of the vehicle. This has a great advantage that in case the owner fails to pay back the loan, they can take the vehicle back which will never put them in a loss.

Jewelry and other securities can be used as collateral in giving loans. In such cases, the ownership of the property must be the borrower himself. In case he fails to pay back the amount, he must accept the transfer of ownership to the property kept as collateral to the bank.

Keeping materials or properties as collateral never means surrendering of the particular property. In fact, this is a simple acceptance that in case the borrower has any problem in paying backs the amount; he has kept something that can be taken by the financial institution. This gives the institution a level of confidence at the time of giving the loan.

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