Security measures for a loan: what protective measures are in place?
In the world of finance, securing a loan involves more than just signing on the dotted line. Banks often require collateral to minimize their risk, and this article aims to explain the common practices and methods used for securing loans.
One such method is the security transfer. When a security transfer is made, the bank gains the right to dispose of and seize the secured asset if necessary. This can be applied to various assets, such as real estate, cars, or even works of art, provided they are recognized and valued by an expert.
In the case of high-sum credits, insurances like life insurance or risk life insurance can be used as securities. In such cases, the bank is named as the beneficiary, ensuring they receive the insurance payout in the event of the borrower's demise.
A common practice, particularly in consumer loans, is the wage claim assignment. This allows the bank to garnish a portion of the borrower's wage if they fall behind on payments. However, it's important to note that the bank cannot seize the entire wage; current garnishment thresholds must be taken into account.
If installments are not paid and reminders are not acted upon, the bank can have the secured asset seized and disposed of in a short time. This is why it's crucial for borrowers to stay up-to-date with their repayments.
Loans are often taken out with a second person, known as a co-borrower, who has the same responsibility as the first borrower. If the first borrower fails to pay or passes away, the second borrower becomes responsible for the loan.
Mortgages are common with construction loans, and the owner of the house or property is entered in the land register, along with a mortgage with the respective bank as the secured party. This grants the bank many rights, including the ability to dispose of or auction off the house to settle outstanding amounts if the loan is terminated.
In some cases, a mobile home can be used as security if it is transportable or stands on its own land. Works of art can also be used as security, provided they are recognized and valued by an expert.
It's worth noting that not all loans are secured. Tricolor Holdings, a subprime auto loan provider focusing on undocumented immigrants, recently filed for insolvency. The company failed to secure collateral for its loans, leading to its financial downfall amid rising defaults and economic pressures.
Lastly, it's important to remember that a pledge can be agreed upon in various ways, but a pledge is not entered as an equally entitled co-borrower, but as a pledge in case of non-payment. The bank must send a reminder and inform that steps will be taken after the deadline has passed before garnishing wages. As soon as the borrower pays the outstanding payments or the open claim, the bank must lift the garnishment.
In conclusion, securing a loan involves various methods and practices, each with its own implications. Understanding these processes can help borrowers make informed decisions and manage their financial obligations more effectively.
