Due to the fact that the potential borrower may prove insolvent, banks try to protect themselves against potential losses in various ways. The type of collateral used largely depends on the nature of the borrower, i.e. whether the client is an individual or an entrepreneur. Additional aspects are the loan amount and the purpose of the loan. Consumer loans are primarily associated with personal collateral, i.e. sureties or bills of exchange. The type of loan largely affects the type of its collateral.
Loan for an apartment
It is commonly accepted that we are applying for a mortgage to buy an apartment. In practice, it is the mortgage that is the type of collateral obtained from the bank’s loan. A mortgage is a record in the land and mortgage register that allows the bank to pay its debts.
This means that if the borrower stops paying off the loan, the bank is entitled to the proceeds from the sale of the property. However, it should be remembered that the bank can only take the amount up to the amount of the mortgage. The bank also has the right to property claims against other borrowers’ creditors.
Various collateral for a home loan
There is a so-called blank promissory note for frequent additional mortgage collateral. This document obliges its exhibitor to pay a specific amount of money to a given person, the date and place are specified. This promissory note does not contain a specific place and time.
They are supplemented on the basis of a declaration at the moment when we stop paying the liability.
A home loan is usually associated with two types of collateral, i.e. bridging insurance and mortgage insurance. In the first case, it is securing the bank’s interest in the period between the conclusion of the loan agreement and the entry in the land and mortgage register becoming valid.
The second case is related to the assignment of rights from the insurance policy to the bank. This means that, for example, in the event of random events such as a fire, compensation related to losses in a flat will be fully transferred to the bank’s account.
In the case of a car loan, two loan collateral are the most popular. They are a registered pledge and ownership transfer as security. In the event of a registered pledge, the borrower becomes the legal owner of the car, which is entered in the book of pledges.
If the borrower stops paying off the loan, the claims will be enforced by the bailiff. The transfer of ownership consists in the transfer of vehicle ownership to the creditor. In practice, this means that until the repayment of the last installment is completed, the car will be owned by the bank.
Other collateral for consumer loans
In addition to the fact that the mortgage is a form of loan collateral, banks also use other solutions. This is mainly about blocking funds on a bank account or deposit. Generally, banks apply blockades to consolidation and consumer loans, whose purpose is not fully defined.
If a block is applied to the account, we will not be able to use the blocked funds until we repay the last loan installment. It should be remembered that the bank’s rights are primarily to satisfy its claims. Importantly, the role of collateral can be played not only by the funds that we have in one particular bank.
The institution has the right to block our funds also on other bank accounts that we have in various banks.
However, a popular loan collateral is having a so-called loan guarantor . The surety consists in another person’s commitment to repay the loan in the event that the borrower is no longer able to pay his debt.
Currently, this security can be applied to virtually any type of loan, while strengthening the creditworthiness of the potential borrower.