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Collateral loan

Online loans gained widespread exposure in the last 5 years. People trust financial companies due to their simple mechanism of loaning and individual approach. Clients are choosing rather quick and conceivable services than dozens of hours in a bank. Thus, today there is a big amount of various types of online loans. One of them is a collateral loan which might seem tricky. Though, below you’ll find the necessary information to allay your fears about this kind of online personal loan.

What is Collateral Loan?

A collateral loan is a secured loan that uses an asset as the deal’s confirmation. “Collateral” is a property that servers as a backup in a loaning process. It is an owned thing (house, car, apartment, etc.) which can be taken away if the lender won’t receive full payment on the loan. This item, as a rule, has a value of the loan, which allows it to be an alternative payment. Bank or a financial company has a right to take collateral away if the loan wasn’t repaid fully or partially till the end of the credit term and in a case of late substantial payment.

The collateral might be of the following categories:

  • Pledged item of the similar cost; Lender’s backup of loan repayment;
  • Lender’s asset that could be sold in a case of client’s defaulter.

Collateral, though seems to be a drawback that could hand out as an advantage. Normally, collateral loans can offer larger loans. Plus, they would be especially helpful for people with bad credit history.

The most frequent collaterals are:

  • Real estate;
  • Automobiles;
  • Bank accounts;
  • Equipment or machinery;
  • Income (receivable sources of money);
  • Jewelry or any other valuables.

Nine times out of ten, the lender will value your collateral for only 80% of your investments or even lower. Lower price – bigger lender’s warranty. So, there is no way that your necklace for 20000 PHP will be pledged for the same sum of money. If an asset loses its price additional asset is also possible.

Types of Collateral Loans

Types of collateral loans are divided according to the type of collateral. Collateral loans help to solve financial issues of practically any matter, including big purchases that couldn’t be afforded through unsecured loans. Explore collateral loan classes below.

Personal Loans

Online personal loans are one of the most popular ways of getting credit in the Philippines today. Various financial issues, health emergencies, trips and presents are the most popular reason to take a personal loan. There are two types of them – secured (includes collateral) and unsecured (no collateral). This type of loan available both in the bank or you can get it via personal lenders.

Personal loan requirements:

  • Filipino citizenship;
  • Age 21 and higher;
  • 2 valid IDs;
  • Stable income;
  • Mobile number.

Though online financial companies have higher rates they are still more popular among people mostly due to their speedy service and convenient process of application. Giving an asset on a property even via online services can provide a lower interest rate. It also helps with newbie businessmen without steady income and clients with bad credit history.

The most reliable financial in the Philippines are MoneyCat, Atome, CashWagon, and OnlineLoans.

Small Business Loans

This type of loan will be interesting for greenhorn entrepreneurs. Well, for the majority of beginners’ bank credits seem to be a huge problem. And, it’s a realistic standpoint. It is challenging to get a stable income, asked in a bank, without crucial equipment that helps to attract customers and get the necessary income. Taking this type of loan, you can pledge your new equipment as collateral which is very beneficial for developing manufacture. Future expenses along with real estate are also possible as an asset. Sometimes, lendees are asked to sign a voucher that confirms the loan and works as additional evidence for a lender.

Mortgages and Auto Loans

By far the most frequent request for such loans is associated with real estate or car purchases. One of the main conditions is the excess of the value of the collateral over the loan body. The borrower needs guarantees, so it happens that an apartment is estimated at 50% of its real value. However, mortgages are the cheapest credits in the Philippines and believed to be the fastest way to get a dream home.

Pros and Cons of Collateral Loans

Taking a collateral loan should be an informed decision. You need to think twice before choosing your collateral as it could be easily taken away. Above all such loans are used for large purchases as house or vehicle. Financial companies offer collateral loans mainly for clients with debts and bad credit score owners.

  • Interest rate is lower as the lender has reliable guaranty;
  • Collateral might be changed during the loan term;
  • Chances are higher for all categories of clients.
  • Lack of housing or loss of business due to asset forfeiture;
  • Any evasion or late payment may be the reason for the sale of collateral.


This type of loan is a serious step and a huge responsibility. First of all, you need to understand that during loan-term you don’t own your asset, as it is completely possessed by your borrowers. However, at the same time, this is a great opportunity to support your business or to acquire a car/house/necessary equipment. It’s up to you! Nevertheless, having a stable income will save your nerves and won’t your purchase put in the shade.

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