The topic of collateral is very relevant today, because a fairly large number of customers of banking institutions have overdue payments on their loan obligations.
What is the collateral property of banks?
To understand the essence of this term, we analyze the process of issuing a loan by a bank and its payment by a client. When drawing up large loan agreements (for example, buying a car or real estate), the acquired goods act as collateral, which ensures the age of the loan to the bank.
The ownership of the purchased goods does not belong to the bank, but to the borrower. At the same time, the client must understand that in case of non-payment of loan payments, ownership of the collateral property of banks will be transferred to the financial institution in full. Note that legally, the right of ownership of the pledge passes to the new owner after repeatedly violating the terms of payment of the monthly payment and interest on the loan by a court decision.
Collateral is a dangerous way to secure a loan
Bank pledged property is formed from the movable and immovable property of customers, which, according to the pledge agreement, is a guarantee of the return of borrowed funds. It can be taken from the owner in court for non-payment of current payments on his loan obligations.
What is the danger of a pledge? Suppose a mortgage is registered, while the acquired property acts as a pledge. Part of the money paid, and then the borrower started financial problems. Accordingly, he cannot pay the loan. Well, if only one or two payments are past due. In this case, there will be no particular problems with the bank. It is just that the debtor is obliged to make all subsequent payments on time. If the borrower understands that the problems with money can be delayed, it is necessary to solve the problem differently, given that the collateral property of banks can be sold to pay off loan debts. In this case, you need to do debt restructuring. The client comes to the bank branch with documents confirming his difficult financial condition. Based on these documents, the bank may decide to reduce the amount of the monthly payment by increasing the duration of the loan agreement.
What do banks with collateral do?
Bank pledged property is insurance of a financial institution. Sometimes there are times that the bank takes the property from the client. In such a situation, the financial institution’s specialists are faced with the task of selling the “former collateral” as quickly as possible in order to return the loan funds to the bank. Often, such an implementation does not take place at the market price, but according to the laws of the auction.
