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What You Need to Know about Collateral Loan

In a previous post, we shared what non-collateral loan is and why this type of loan can be beneficial for you, especially if you don’t have assets under your name. On the other hand, there is another type of loan that you will come across and it goes by the name collateral loan. 

What is this about? How is it different from non-collateral loan?

Keep reading to find out.

Collateral loan, defined

From the name itself, collateral loan is a type of loan that is secured by an asset, preferably under your name, the borrower. This means the loan is guaranteed by an asset and will be transferred in the name of the lender in case you are unable to pay after several demands. This way, the lender is assured that no matter what happens, the loan obligation will be paid and will not lose the entire amount borrowed.

Assets you can use as collateral include property or real estate, vehicle, jewelry, cash account such as time deposit, collectible items, or investment like stocks or mutual funds.

Why apply for a collateral loan? 

You are at risk of losing your property. Why should you go for this type of loan?

First, keep in mind that you will only (possibly) lose the property or any asset you used as a collateral IF you failed to pay your loan obligation. Before that happens, lenders often give borrowers a chance to pay for loan by coming up with an arrangement that is beneficial for both parties.

In case you are still unable to pay despite the arrangement and (the many) chances given to you to be able to pay, then that’s the time when lenders will go after the secured property to cover for the loan. This can be a tedious process, which is why foreclosing an asset is often the last resort.

Nonetheless, the good thing about collateral loan is that you can get a loan regardless of having a bad credit. Your credit score is a crucial factor in determining your credit-worthiness, but lenders are willing to bend the rules and approve your loan application IF you can present any asset for collateral.

Interest rate is often lower compared to non-collateral loan because in collateral loan, there is a security attached to the obligation. There is no better assurance than an asset itself; hence lower interest rate.

What if the value of the collateral is lower than the loan amount? 

Unfortunately, you still have to pay for the entire loan amount. For instance, your loan value is P100,000 and the value of the asset you used as collateral dropped to P80,000. You still need to pay the remaining P20,000 plus interest charges up to the day of payment to fulfill the entire loan obligation.

Does Balikbayad offer collateral loan? 

Apparently, we don’t, although we require you to have a co-maker (who receives remittances from you) when applying for a loan with us. We want to keep loan application and processing simple and straightforward by not asking too much documents from you.

What are you waiting for? Send your loan application now and let us be your partner to help you achieve financial freedom.

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5 Tips on How to Speed Up Your Seaman’s Loan Approval

Are you a seaman who is in need of cash? Do you need money to finance the purchase of a car or to help you put up your own business? Then there is good news for you. Apart from the usual OFW Loan, many lenders also offer Seaman Loan exclusively for seafarers like you.

Seaman Loan is a type of financing option specifically designed for seamen and their families. Similar to other types of loan, a Seafarer’s Loan requires qualifications before you get approved.

Don’t worry. There are many ways to help you get approved faster when you apply for a Seaman’s Loan. This includes: 

1) Complete all the requirements needed. 

Lenders deal with tons of applications everyday. They have to go through every set submitted to check if the requirements are complete and endorse the application for approval. If you are unable to submit a complete set of requirements, lenders will less likely prioritize your application.

Before you submit an application form, make sure that you have all the requirements needed, which includes birth certificate and government-issued IDs. If you want faster approval, don’t forget to provide documents that will show your capacity to pay such as Fleet Manager’s Recommendation or Joining Date Disclosure.

2) Prove your salary status. 

Lenders are not willing to extend credit to everyone, most especially to those who are not capable of paying back a loan. To speed up your Seaman’s Loan approval, make sure that you are able to prove your capacity to pay by showing your salary status.

3) Know your dates. 

There is a reason why lenders, regardless if you are borrowing from the government, commercial banks, or private lenders, ask for your Certificate of Employment or Overseas Employment Contract every time you apply for a loan. They need to know the status of your employment and when you are coming back.

Many OFWs think that just because you are abroad for two years (or more, depending on your contract), it will be harder for lenders to go after you. If they see that your employment is unsecured, they are less likely to extend credit.

What kind of dates should you provide? The Joining Date Disclosure, which you can get from your Fleet Manager, and Departure Date. These two will show lenders that you have a secured job and salary to pay for the loan.

4) Prove your residence status. 

Do you know why lenders have soft spot on collateral loans? It is a form of assurance for them of your intention to return to the Philippines once your contract expires.

If you want to speed up your application and increase the chances of approval, secure your residence status through home ownership or use one of your properties as a mortgage for the loan.

What if you don’t have your own home yet? If you are living with your parents or relatives or have an ancestral home (don’t worry, it doesn’t have to be big), then you can use that to prove your residence status as well. Otherwise, you can try the next tip.

5) Apply with a co-borrower.

A co-borrower is common on non-collateral loan and whose role is to pay for the monthly amortization of the loan in case you failed to pay.

Lenders understand that not all OFWs have properties to help secure the loan. In that case, you can apply with a co-borrower since it also serves as an assurance that lenders can go after someone in case you missed a payment.

Do you want to make loan application easier for you? Then Balikbayad might be of help. Give us a call or send us a message and let’s talk about how we can help each other.