As the word credit collateral says and formulates, the lender is anxious to secure his credit as best as possible. From the moment that the loan has been paid out to the borrower, the credit institution has the risk-usually theoretical-that the loan will also be repaid in accordance with the contract. These are the loan amount granted and the agreed loan interest. If they are not or only partially paid, then that reduces the profit on the lending business.
Payment problems with the repayment amount, on the other hand, result in a loss because the lender gets less money repaid than he lent. Credit in Latin means credere, translate into German or faith entrusted. This may be sufficient in the private sector for a personal loan, but not in business for commercial lending. The credit institution must have as many collateral and equivalent collateral as possible for the loan, which can then be used if there are payment problems in the loan repayment.
What are collateral?
Credit collateral is the equivalent in terms of personal and material assets to the loan granted or received. Both must be literally made money in the given case. Typical personal security, also called personal collateral, is the guarantee, the guarantee or a letter of comfort. It is a collective term in corporate law for all statements of obligations under which a company as “patron” for its subsidiary as a borrower assumes the credit obligations. One takes over the guarantee, the guarantee or the patronage for the other. The lender generally agrees to this, as long as it improves the creditworthiness of the borrower and reduces the credit risk. A common security is the mortgage as a real estate financing.
The construction loan in the six-digit euro area is doubly secured; on the one hand by the creditworthiness of the client, on the other hand by the land charges in the land register of the real estate. Collateral security is collateralised as collateral only for a certain proportion of its value. Depending on the bank, the land charge for a property is up to eighty percent of the market value. The guarantee as a personal security, however, is secured in full, ie up to one hundred percent.
What collateral is important for a bank?
The lender prefers those collateral that he most likely and easily has direct access to. These are primarily personal security such as the guarantee. Number of borrowers does not, takes the place of the guarantor. A letter is sufficient for the debt service to be taken over immediately. The type of security is directly related to the loan.
The car loan is secured by the deposit of the vehicle registration certificate Part II, the previous motor vehicle letter. Without this document, the vehicle owner can not sell the car; he can neither sell nor give it away. The credit institution thus secures the right of disposal of the car, but not the value preservation. In a total loss, the vehicle is worthless. The car loan remains unaffected, but the lender can not make the deposited car letter money. Significant loan collateral includes all mortgages and transfers of movable assets and movables.
How do banks rate collateral?
Apart from the general lending guidelines, which apply in unison to all credit institutions under the terms of Basel II, each of them has its own in-house evaluation criteria. They differ significantly for loans to commercial companies from those for private individuals; But they are also quite individual for each individual bank.
Consumer and consumer credits for purposeless use are secured only by the creditworthiness of the borrower. Here the credit bureau score is the ultimate. This is also used as a basis for a construction loan, which is additionally secured by a land charge entry. In addition, the client concludes a residual debt insurance or a term life insurance. As a result, the loan for premature death is replaced immediately. The open balance of the loan is cleared and the property is debt free.
In general, the principle that credit security must be so high-value and high that it is sufficient to balance out the outstanding balance of your credit at all times. With increasing repayment duration, the associated collateral can also be reduced.