For some time now, banks have had to pay more attention to the customer's personal creditworthiness than before when granting loans. An EU directive in particular has contributed to this, as it states that the lender should place more emphasis on whether the credit applicant is capable of paying the agreed loan installments in terms of his creditworthiness. Since not all people who want to take out a loan have an excellent credit rating, equity capital and loan collateral are becoming more important. When equity is important primarily in the context of real estate financing, collateral can generally serve to increase the chance of getting a loan.
To find out why this is so and what collateral might also be of interest to you if you want to increase your chance of a positive credit decision, read the following article.
Equity capital as indirect loan collateral for construction financing
Not an official credit security, but still indirectly to be considered as a security aspect, is the equity capital. This plays a role almost exclusively in the private customer sector when it comes to real estate financing. Since banks are also encouraged to place more value on the personal creditworthiness of the customer and not just the basic debt as collateral, equity can help ensure that a positive credit decision is made by the lender. With installment loans, on the other hand, equity capital is not important, but with these types of loans, it is above all important that you can also provide collateral above certain loan amounts in order to increase your chances of getting a loan.
Current loan collateral at a glance
If you think that your creditworthiness is perhaps not quite sufficient for the bank to respond positively to your credit request, there may be a chance that you can put up one or two securities. Banks naturally grant installment loans more easily if at least not all of the loan is a blank loan, but part of the loan amount is secured by collateral.
In the overview, it is especially the following loan securities on the market that are currently claimed:
– basic debt / mortgage (only rarely now)
– transfer of ownership by way of security
– assignment of claims
– pledge of assets
– pledge of securities
– residual credit insurance
– surety bond
Some of these types of collateral can be used universally, such as the assignment of receivables or the pledging of assets. Other securities, on the other hand, are relatively specifically tied to the financing, such as the land charge or even the transfer of ownership by way of security. We would like to take a closer look at this loan collateral in the following section.
Land charge as traditional loan collateral in real estate financing
What used to be the mortgage is nowadays the land charge: a classic loan security that is used in the context of real estate financing. Hardly any bank will grant a real estate loan nowadays without securing a large part of the loan amount via a land charge.
The land charge itself is one of the so-called mortgages, which give the creditor the right to use the property under certain conditions. Credit comparison24.Com
This happens in practice mostly by the fact that a foreclosure is called, if the borrower does not meet his obligations (payment of the loan installments). The land charge counts as collateral, because it is connected with the property or. The property has a tangible asset behind the loan collateral. The land charge becomes effective when it is registered in favor of the lending bank in the respective land register at the competent land registry office.
Transfer of ownership by way of security: common practice in car and commercial financing
Another loan collateral is in practice relatively earmarked, namely the so-called collateral assignment. In practice, this usually takes one of the following forms:
– collateral assignment vehicles
– collateral assignment machines
– transfer of ownership of office equipment by way of security
– transfer of ownership of materials/goods by way of security
The collateral assignment of vehicles is available for both private and commercial use. If, for example, you want to finance the purchase of a new car, the bank will usually only grant you the required amount of money if you also agree to a transfer of ownership of the car as security. In this case, the lender becomes the legal owner of the vehicle and can sell it if you do not pay the agreed loan instalments as agreed. In the commercial sector, the transfer of ownership by way of security is much more common, as it is used, for example, when new vehicles, machinery, production equipment or even office equipment are to be financed.
Assignments of receivables: annuity or endowment life insurance as collateral
A relatively universally applicable form of loan collateral, which is accepted by the lender for quite a few installment loans, is the so-called assignment of receivables. In the private customer sector, this usually involves the assignment of an annuity or endowment life insurance policy. In the case of both private annuity and endowment life insurance, there is a so-called surrender value. This is the countervalue that the policyholder would currently receive if he cancels the contract prematurely and thus terminates the insurance policy. This surrender value is very reliable for both private annuity and classic endowment life insurance (not as a form-linked variant), so that banks usually apply such loan collateral at 100 percent.
Pledging of security or savings deposits
Two other types of collateral are relatively similar, namely the pledging of securities and the use of (savings) deposits. In both cases there are assets, namely on the one hand as countervalue or. Current market value of securities and, on the other hand, in the form of a cash balance in investment accounts such as time deposits or call money. In both cases, the pledge achieves that the lending bank is entitled to access the securities or savings in the event of a possible default on the loan. Conversely, this means that the borrower may not sell any securities without the bank's consent. In addition, a blocking notice is set up on investment accounts, so that here, too, no independent disposal by the account holder is possible without the knowledge of the lender.
Residual debt insurance as very simple loan collateral
Credit insurance is a very simple and viable loan security that many banks like to use. In this case, under certain conditions, an insurance policy would pay the remaining installments of an outstanding loan. As a rule, credit insurance covers the following types of loss:
– death of the policyholder (borrower)
– unemployment (through no fault of your own)
– occupational disability
– prolonged incapacity for work
All these causes are associated with a loss of income, so that the loan installment could often no longer be paid if the credit insurance did not kick in.
Guarantee as the only personal loan collateral
All of the aforementioned loan collateral falls into the category of collateral in rem. The only personal loan collateral is the guarantee. In this case, another person, the citizen, is responsible for the debts of the borrower to the bank. Since the lender can turn to a guarantor relatively quickly and easily in the event of a loss, you should think very carefully about whether you are a guarantor for another person. Furthermore, the bank will accept the guarantor only if the guarantor has a good credit rating or assets that can serve as collateral.