Forms of loan security: types, requirements of banks and methods of verification

A person who takes a loan may not know that there are several forms of loan security. This is a serious gap in education, because such information is necessary at least in order to correctly weigh the pros and cons. So that you learn to think before you take a loan, we will tell you everything in detail.

Definition

What is a loan security form? Do not know? And what is collateral itself? Don't know too? Then you definitely need to read our article.

So, collateral is a kind of collateral that can be taken from the owner, and subsequently sold through an open auction. All these actions will occur if the borrower is poorly performing their duties, that is, to repay the loan.

If you look at the legislation of our country, it says that a loan can be issued only for certain forms of loan security. This was done so that the lender also had guarantees, because he should know that even if the borrower does not pay anything, the money will not be wasted.

Typically, credit security may be needed if a person wants to take a large amount. To make sure that the client has the funds, and the loan will not result in a loss for the bank, an agreement is signed between the two parties. The latter entitles the bank to take advantage of collateral for its own benefit.

Types of collateral

So, what forms of loan security exist? To minimize all possible risks, credit organizations, before issuing a loan, require the applicant to confirm solvency. This is due to the fact that the bank needs guarantees of the return of money to it.

What can be a guarantee?

1. Surety.
2. Pledge.
3. Assignment of requirements.
4. Other forms.

Most likely, the list did not clarify anything. To fill in the gaps, we will consider each form of loan security separately.

Pledge

Collateral is the most popular method of collateral. The borrower immediately recalls all his obligations to a banking organization. Is conscience waking up? No, rather, it comes to the realization that in case of failure, he may lose some property.

This form of collateral loan repayment is divided into two categories:

1. Pledge of property rights.
2. Pledge of property values.

In the first case, we are talking about all kinds of rights of the debtor, for example, this may be copyright, the rights of the customer under a contract or tenant's rights. It seems simple, but there are several nuances. For example, copyrights can only be secured when they do not bring dividends or benefits.

The second category is characterized by luxury goods, antiques, precious goods, real estate or deposits. It turns out that in a situation where the borrower does not fulfill his obligations, the lender has the right to receive property value that can be sold at auction. Then the money after the sale will be sent to pay off the debt and the bank will not incur losses. Usually, a form of collateral for choosing a loan is to choose a mortgage.

That is, the borrower realizes that if something happens he will be taken an apartment and put up for auction. This moment should stimulate the deadbeat, and show the bank that the person is serious about the loan.

I would like to add that usually both banks and their clients choose a material thing as collateral. This is due to the prospect of selling, because a thing or value is much easier to sell than the right to something.

Where is the deposit kept?

This form of collateral for bank loans, such as collateral, may remain in custody of the client, or may migrate to the bank. This issue solves several factors. First, the size of the loan. The larger the amount, the calmer the bank, if the valuable thing will be with him. Secondly, the policy of a banking organization.

But even if it happens that the thing remains with its owner, then the freedom of its use will be limited. For example, the value cannot be donated or sold until the full repayment of the loan.

Lender rights

Since collateral is a popular form of securing bank loans, laws have been adopted accordingly. For example, a lender may from time to time check the availability of value that has been left as a pledge, or track its condition. If the collateral is damaged or lost, the banking organization has the right to require the borrower to quickly repay the loan. Another development scenario is replacing collateral with another at the same cost.

Collateral is the main form of loan security, which means it must meet certain requirements. What are these requirements?

1. The value must be owned by the borrower. Other owners except the debtor are not allowed. One-person ownership can only be confirmed with the help of documents; no one will take a word.
2. The item is valued at a certain amount, which is confirmed by relevant documents.
3. Value does not appear as collateral for other owner loans.
4. The item must be in demand if it suddenly has to be sold. Most often, banks put forward this condition as a must, because they are interested in a quick sale.

Guarantee

Among the main forms of collateral, a guarantee is mentioned. What is it? This is the name of a third-party written obligation to repay a debt if it is impossible to obtain a loan from a participant in a loan agreement. It is interesting that this method of security is used not only by individuals, but also by organizations and companies.

The form for securing a loan repayment is such that a transaction is concluded between three parties. Moreover, the third party must be aware that in any unpleasant situation all obligations will fall on her. The surety is also obliged to cover partially or fully the payments of the borrower and to control the entire process of repayment of the debt.

A third party confirms its obligations in writing in addition to the standard loan agreement. If you need to make any changes to the document, the banking organization will need to first notify the guarantor and obtain his consent. In case of failure to comply with this procedure, all changes to the contract will be invalid.

End of guarantee

A guarantee as a form of ensuring repayment of a bank loan is considered closed in the following situations:

1. The agreement has expired.
2. The text of the agreement was amended, but the guarantor was not notified and no one asked for his consent.
3. The banking organization received all the money in full and has no complaints.
4. The debt was transferred to another person. An important condition in this case is the surety of the guarantor and the lack of his consent to such changes.

Bank guarantee

Another form of loan security. Its essence is to carefully fulfill all the conditions of a loan agreement with a credit structure. In this case, the guarantor is financial institutions, various structures that provide insurance services. This moment is enshrined in the Civil Code of our country in article 368.

Simply put, a guarantee is a one-way transaction, under the terms of which the guarantor provides written statements to the credit structure.

The guarantor must indicate that he is ready to pay off the balance of the debt in advance if the borrower is unable to do this for any reason.

Warranty Classification

The guarantee is a modern form of providing loan repayment, and like any modern form has a classification.

They are classified according to certain parameters:

1. Unsecured and secured. The second option involves a simple written obligation that sets out guarantees for repayment of the debt if the borrower is unable to fulfill his obligations for some reason. In the case of the second option, we are talking about collateral for a loan with certain property. In this case, the condition of the bank is the equivalence of credit and collateral.
2. Unlimited and limited. Unlimited are those cases when the guarantor is obliged to cover the full amount of the debt. The latter include a guarantee for a certain part of the debt. By the way, the issue is being solved at the stage of concluding a contract.
3. Cooperative. We are talking about debt obligations of the main company in relation to its branches and divisions.
4. Personal. When guarantees are given by individuals or a group of persons.
5. State. We are talking about the obligations of government agencies regarding loans to commercial entities, population groups or public organizations.

Warranty Rules

A guarantee is a form of ensuring repayment of a loan, which means that there are certain rules for its processing. They are regulated by law and cannot be violated. The main thing that is reflected in the law is that the guarantee takes effect at the moment the contract is signed. But this rule only works if the guarantor has been paid a fee for the support provided.

An analysis of the forms of collateral for loans issued by commercial banks and state banks is such that it allows you to highlight certain situations when the transaction is canceled. They are as follows:

1. The warranty expired and the parties did not extend the cooperation.
2. The borrower closed all debt to the credit structure. It is important that the latter does not have any complaints about the return of the amount.
3. The credit structure refused to provide loans with additional guarantees.

Concession

Another form of ensuring repayment of the loan in modern conditions is a concession. For greater convenience, this form is called cession. What it is? This is a document agreement, according to which the borrower transfers its requirements to the banking organization to confirm the provision of repayment of funds.

According to the document, it turns out that the bank can use the money only to pay off the debt. If the amount received exceeds credit obligations, the bank must return the difference to the borrower. There are two forms of assignment:

1. Open. Under this form, the debtor is required to notify the assignment of claims. That is, the borrower repays the debt to the bank, and not to the borrower.
2. Quiet. The debtor does not know that the claims have been transferred. He pays the amount to the assignor, and the latter already transfers the money to the banking organization. This method is most beneficial for the borrower, because thanks to it you can not spoil the reputation.

Ways to ensure loan repayment

Any bank seeks to minimize its own risks and for this develops certain tools that help not only control the borrower, but also influence it. Usually such tools are a trade secret, but there are still some rules that are most often used by banking organizations.

1. Issuing loans to regular customers. If a random person gets a loan, it will be a very small amount.
2. Limit loan terms. The shorter the loan term, the faster the bank will receive its money back. Thus, the bank minimizes the risk in this situation.
3. Passive solvency assessment. What is the point? First, a person is given small loans, after which the amount of a possible loan increases by default.
4. If the client chooses collateral, the bank carefully selects the proposed values. As a rule, the bank does not take items with defects, low liquidity or lack of demand.
5. The more loans, the more security. This is the lender's task, because only in this case we can talk about small risks.

Non-traditional forms

What non-traditional forms of collateral for loans do you know? I bet that none. We will tell you about some.

A slightly unusual form of collateral is a deposit. If a person has a contribution that exceeds the amount of the loan, then he can act as collateral. An even greater advantage will be that the deposit is in a banking organization, where the client wants to take a loan.

It is foolish of the bank to refuse such an option, because in which case the remaining debt can be written off from the deposit account. Mandatory payments can also be written off from the latter if there is no money in the current account.

The borrower is also quite comfortable, because the deposit confirms solvency. But there is a minus - the client will not be able to freely manage the money in the account or close the deposit ahead of schedule.

Penalty only at first glance does not apply to the form of loan security. In fact, everything is much simpler and possible. Forfeit is the amount that the debtor will have to pay if he misses the payment. It can be in the form of a penalty or a fine. But this does not mean that during the validity period of the loan agreement only one type of penalty can be applied. The law allows for different periods to apply different options.

We can say that the penalty does not apply fully to forms of collateral. But it is a kind of payment for the time that the banking organization did not receive interest, and hence income.

For this reason, we can conclude that the forfeit is not a form of collateral for a loan, but for small loans it is perfectly suited. Any bank for a serious loan will require more substantial collateral.

Collateral Check

We dealt with the forms of collateral for the repayment of loans, but did not talk yet about how the collateral check is going. It seems to us that now is the time.

So, the verification calculation form was developed by the National Bank, while proposals from commercial banks were taken into account.

Checking the security of loans in this form is carried out by borrowers of all forms, including commercial structures. There are slight differences, for example, the latter fill only those positions that are responsible for the nature of the activity and the structure of the balance sheet.

If a lack of collateral is identified, then it is immediately recoverable. Moreover, further lending continues, but the conclusion of new agreements is being questioned.

Commercial banks are required to make more stringent requirements, because they are required to support those enterprises that have developed effective programs for overcoming the crisis, reorienting or reorienting production to the production of necessary goods.

During the audit, it should be proved that the main sources of working capital formation are the profit of organizations and enterprises or funds from the sale of securities.

In addition, the bank should think about reducing the risk of debt default, and therefore carefully issue loans to government agencies that have opened a bank account in another bank. When concluding an agreement, it is necessary to determine the method of paying off not only debt, but also interest.

The following method is considered to be the most profitable: the borrower transfers payment means within a certain time using a payment order. If the borrower does not pay off debts for some reason, then the bank has the right to apply to the court the next day (after the payment date has expired).

Obligations and rights of the mortgagor

Let's talk about this pretty serious topic. What for? Yes, because even after the term pledge has been deciphered, not every person is aware of their rights, and even more so their responsibilities.

So, what can the mortgagor:

1. Own value. This is a mortgage or car loan.
2. Use a pledge. Again we are talking about a car or real estate.
3. The borrower retains ownership.

What is the borrower obliged to do?

1. Provide the necessary storage.
2. Insure value for your own money. And again we are talking about a car or an apartment.
3. Transfer mortgaged property.
4. Claim property if it is unlawfully seized by third parties.
5. Check safety and value.
6. Demand a return of property if the obligation is properly performed.
7. Demand the return of the remaining amount after payment of the loan when the banking organization sells the thing.

Risks and loan insurance

What is credit risk? The fact that the bank will incur losses due to untimely repayment of the loan by the borrower or the latter completely abandons the obligation.

Lending operations are considered not only the most profitable, but also the most risky. If several large loans are not returned to the bank at the same time, then it may go bankrupt. Moreover, bankruptcy threatens not only the organization itself, but also all private individuals, enterprises and other related banks.

What are the levels of credit risk?

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To date, a bill has been passed that prohibits a person from having loans more than half the monthly salary. And this is really correct, because otherwise people simply will not have anything to live on and pay debts for.

Have you met such families where people have huge debts and obligations, and there’s nothing to buy even a package of milk for? If so, think carefully before taking a loan. You don’t want to live like that? Everything related to finance, you need to check several times, including their chances of payments.

Calculate your possibilities correctly, both financial and moral, and do not drive yourself into a corner with huge debts, and then everything will be fine.