What is a pledged loan guarantee?

Probably if you have ever applied for a loan you have found yourself faced with the need to present certain guarantees to the lender. No doubt you have heard of guarantees and mortgage guarantees, but the pledged guarantee may not sound so much to you.

The pledged guarantee of a loan

The pledged guarantee of a loan

When we speak of pledged collateral we do so to refer to that in which the client uses a financial asset as collateral. Whether it is your participation in a deposit or fund or even stocks. This type of guarantee has the advantage of not having to leave a property as collateral for the loan. In this way, in case of not being able to meet the agreed payments, the house will not be lost but a financial asset.

Requirements to use a financial asset as a pledged guarantee of a loan

Requirements to use a financial asset as a pledged guarantee of a loan

In order to use a financial asset as a pledged guarantee it is necessary that it can be liquidated without problems if necessary. Hence, we can use shares, investment funds or deposits for this purpose. These guarantees are born as a guarantee capable of replacing the classic mortgage guarantee in which it is necessary to have a property.

For the financial asset to function as collateral, it must be disabled throughout the repayment period of the loan. In other words, we will not be able to sell it or change it if we find ourselves in an interesting situation. However, using a financial asset to pledge a loan does not prevent us from continuing to obtain profitability from said asset.

The amount that the financial institution offers the customer as a loan will be directly linked to the value of the financial asset that is used as collateral. And also to its possible fluctuation.

Advantages and disadvantages of a pledged loan guarantee

Advantages and disadvantages of a pledged loan guarantee

This financial product, like any other type of guarantee, has both its pros and its cons. Let’s see what they are below.

Advantage

  • Lower formalization costs. In general, this type of loan is characterized by lower costs when formalizing it.
  • Good credit conditions. It is common for financial institutions to offer loans with better interests and more attractive terms if a pledged guarantee is used.
  • We will not fall into decapitalization. Unlike what can happen if we contract a loan whose guarantee is a home. It is true that we cannot do anything with the investment product that we have used as a guarantee. But this does not prevent us from continuing to collect the benefits it generates.

Disadvantages

  • Hard to find. Very few credit institutions offer the customer the opportunity to use this type of guarantee.
  • We cannot operate with our financial assets. Until the loan has been amortized, the assets used as collateral will remain on standby. In addition, they must be deposited in the entity that offers us the loan.

The installment loan: when does admission make sense and when does it not?

How times change! While it was not too long ago to take out an installment loan and get into debt, the topic of credit is now a good thing. There is nothing left with negative comments or an incredulous, critical “shake your head” when you speak openly about credit. Without a doubt: The installment loan has significantly improved its reputation in recent years.

There is hardly a product that cannot be financed cheaply – be it the smartphone, the food processor, the vacation, or traditionally just the car or the longingly desired home. Life is really easy. Taking out and using a loan is just as easy today as going “shopping”. Only sometimes should you ask yourself whether taking out an installment loan really makes sense – right?

Taking out an installment loan means assuming financial responsibility

Taking out an installment loan means assuming financial responsibility

There is no question that everyone wants to fulfill certain wishes somewhere or to strike at a particularly cheap bargain. Even if your own funds are not sufficient for the purchase. So a loan is needed to satisfy the need to “want”. But does that have to be? Does an installment loan really make sense? And the question of meaning has its justification, because many people are often not sure whether it makes sense in an individual situation to take out a loan or not. Admittedly – in principle, every adult should be able to estimate when it is necessary to take out a loan. But if that were the case in full, a not inconsiderable part of the population would not be in debt.

Installment loan only for really important purchases

Installment loan only for really important purchases

So again the question: When does an installment loan actually make sense? But making a general statement on this question would be a mistake. Because each installment of an installment loan is based on an individual need and so each individual case must be viewed in exactly the same way. Basically, however, the following applies: If something is to be purchased using an installment loan, then it should, or rather must, be a really important purchase. Conversely, borrowing makes a lot less sense for a product that you would like to have but that is not absolutely necessary.

Other ways to borrow

Other ways to borrow

As a rule of thumb, only durable, value-stable products justify taking out an installment loan. Classic examples are certainly a new motor vehicle, motorcycle or high-quality furnishings. This can also apply to technical devices to a limited extent. However, it should be borne in mind here that technical progress is now progressing very quickly and the loss in value of those devices is therefore very high. In such a case, it is advisable to choose a shorter loan term than the expected service life of the device. A cheap loan can also be used very well to replace existing, more expensive loans, such as the overdraft facility.