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