Types Of Properties Which Can Be Given As Collateral For A Loan

When it comes to loans, collateral is the most daunting term for people. The question seems very basic, but there always remains a lack of clarity about the various forms of properties and their applicability as collateral for a secured loan. The article you are about to read would bust all the myths and clarify the various types of properties accepted for a collateral and secured business loan.

What is meant by – Collateral against Loan?

Collateral can be an asset that the borrower pledges to the lender as security against the secured loan. It is a supporting medium for a loan transaction as the lender can liquidate it in case of any default in payment, and thus, it acts as a security against the amount being lent by the lender.

For example, suppose you want to start a new business for which you plan to take a loan. Your lender would ask you to pledge any collateral like your property or some other kind of security like real estate, bonds, or government securities of the same or higher financial value. Further, once the lender does the assessment and is satisfied with the document, they will easily grant you the loan and fulfill your financial requirements.

Various types of Collateral:

Collaterals are generally classified as: –

• Immovable Property/Assets
• Liquid Assets

Immovable Property/Assets are in the form of a house, residential building, or parcel of land. Liquid Assets are easily liquidated, such as Government securities, Bonds, Insurance, Fixed deposits, etc.

People often believe that all forms of property qualify for a collateral loan, but this is not true. Read ahead to learn about the types of properties that are accepted for a secured loan.

Types of Properties that are eligible to be collateral for the loan:

• Residential Properties: –The home you live in is rightly said to be your greatest asset. All residential properties qualify for a secured loan; it can be the house you live in, any residential apartment you have rented, or any other form of vacant residential property. Residential properties are the most preferred collateral for lenders, and the loan processes for these assets are highly streamlined. You can continue living in your home, and once you are done paying back all the outstanding loans, you can easily claim back the ownership rights of your residential property.
• A plot of land: Parcels of land in your ownership can also act as collateral, with the basic requirement of being properly demarcated for identification purposes. The rules regarding land ownership vary from state to state, so just as a matter of caution, refer to your state’s guidelines regarding land ownership. Also, the land you are pledging as collateral should not be agricultural land but free from ownership disputes.
• Commercial Properties: –Properties following certain specific municipality guidelines are designated as commercial properties. These properties are generally used by enterprises for commercial purposes other than residing. Commercial properties are also in high demand as collateral as they are of huge financial value, and lenders easily accept them as a security against any secured loan. For a commercial property to be eligible for a secured loan, you must check that no residential property falls in its vicinity as per the local municipal guidelines.
• Properties having more than one owner: –There is a lot of confusion regarding the eligibility of properties with multiple owners for a secured loan. A property having multiple owners can also be pledged as collateral against any secured loan, but only with a basic condition that the said property's ownership must be shared among the close family members, and there should not be any live ownership disputes. The relations preferred in this case are parents and children, siblings, mother-son, etc. Relationships like in-laws, friends, and other parties can also be considered based on the lender's guidelines.

To Summarize:

If you are interested in collateral loans for housing finance or secured business loans for your start-ups, you can refer to various online portals. The most preferred one currently is Piramal Finance.