Because there is less risk for the lender to a loan on collateral, this is a relatively easy and cheap form of borrowing.
After all, the financier has your collateral. So in any case, he will get his money back if you do not meet your obligations.
Form of loan on collateral
The most familiar form of borrowing on collateral is the mortgage. The bank lends you the money to buy a house and they get the house as collateral for the loan. For more information about mortgages, see our Mortgage page.
An alternative way to get a loan on the basis of a collateral is to borrow the policy of your life insurance policy.
If you have a life insurance policy without annuity clause and the insurance is not part of a so-called life mortgage, you can borrow this policy at a percentage of the redemption amount of the policy. In order to do this, the conditions of the life insurance policy must state that the policy may be lent.
In that case, you will receive this credit from the life insurance company. The lending percentage is approximately 90 to a maximum of 100 percent of the surrender value. You can withdraw this credit until the end date of the insurance.
A municipal credit bank exists in a number of municipalities. And everywhere in the Netherlands you will find private lenders who are willing to provide you with a loan on collateral. We call this a pawnshop or pawnshop.
Benefits of a loan on collateral
Because the lender runs relatively little risk, you can often borrow on favorable terms. And in a number of cases, an existing loan can be extended if you provide a collateral. Think of a business loan where you bring in your own home.
Disadvantages of a loan on collateral
The biggest disadvantage is that if you can not (temporarily) meet your payment obligation, the lender can sell your collateral. With such forced sale, it often happens that the collateral yields less than the amount of your loan. Think for example of the execution sale of your house.
Think carefully before giving the grandfather’s inherited ring or your father’s golden watch as collateral. You run the risk that you will not see it again if you can not pay the monthly installment.