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Common Questions About Using Collateral On a Loan

Using collateral on a loan is the easiest way to get yourself approved and get yourself a great interest rate, especially when compared with unsecured financing options. But how does it all work? This can be overwhelming and confusing, but it certainly doesn’t have to be. These common questions cover basic things you’re going to want to know before you start diving into the world of financing.

What is collateral? Collateral is the security you promise to your lender. It’s saying to them that if you fail to make your monthly payments, they have this as security that they can repossess to cover their losses.

What is a secured loan? This is where you offer up some form of collateral. In unsecured financing there is none. In this type of loan your property can be repossessed if you don’t make your payments each month. By having this type of security the lender feels safer, that there is less risk, in lending to you. When there is less risk lending to you companies are more likely to approve your application and are more interested in working with you.

What can you use for collateral? The short answer is anything, but the longer answer is that every company sets their own standards. Banks will mostly only work with real estate and this is the most common form of security. However this is not the only type. The second most common option is a vehicle. It’s fairly easy to find a good number of lenders who will work with a car as collateral. Less common, but still out there, are those who will work with high priced items, like collectibles or jewelry.

Can I keep using my property while it’s being used as collateral? That depends on the item being used. When you are doing real estate or a car, then you can go on using your item as normal. With other high priced collectible items, however, lenders will often hold the item until you have finished making all of your payments.

Why would I want to do this? While there is certainly unsecured financing out there, using collateral makes it a lot easier to get approval. This is important if you have something like bad credit in your history. There are more benefits beyond that, however. By making the lender feel safer that you will repay things, and taking the risk off of them, they are more happy to work with you on things like the amount of your monthly payments, and most importantly, your interest rate. Secured financing is going to have the best interest rates available for you.

How To Choose The Best Miami Pawn Shop

How a pawn shop works.

Pawn shops provide three main services to their clients:

1. They buy your items of value.
2. They sell previously owned merchandise.
3. They lend you money against an item of value that you have brought into the pawn shop as collateral.

Now, let’s elaborate on each of these three services so that you know exactly how it all works.

1. They buy your items of value.

Basically, a pawn shop will give you cash, on the spot, for almost any items of value that you bring into the shop. These items include gold, platinum, silver, and diamond jewelry, precious gems, electronics such as televisions, computers, video games, household appliances and tools, musical instruments, bicycles, motorcycles, cars, etc.

As long as the item is in working condition and has value.

2. They sell previously owned merchandise.

Pawn shops sell a wide variety of previously owned items at great prices. The benefit of buying merchandise from a pawn shop is that you can often find great deals. You can find merchandise at up to half off the regular retail price.

3. They lend you money against an item of value that you have brought into the pawn shop as collateral.

If you need to borrow money immediately, you can bring an item of value into the pawn shop. The pawnbroker (the person that lends you the money against your collateral) in the shop will determine the fair market value of your item and give you a percentage of that amount in cash, on the spot. You leave your item of value (collateral) there at the pawn shop and leave with your cash. You will have to pay the pawnbroker monthly interest on the borrowed cash. This process is called “pawning.”

At the end of the loan, as long as you have paid the pawnbroker back his cash as well as the interest due, you will get your item of value (collateral) back.

If you do not repay your loan and interest, the pawnbroker keeps your item (collateral).