What is a pledge loan?
It is likely that talking about pledge or pledge will be unknown to us at first. However, if instead of referring to pledges we talk about efforts, we will surely face a much more familiar term. Actually, we talk about the same thing: pledge loans and pawns are based on the loan of money in exchange for leaving a good in pledge.
The pledge or pledge is based on the fact that the guarantee is a good with value, whose custody passes to the lender, creditor or financial entity during the period in which the loan is in force. If the debtor fails to fulfill his obligations to the lender, the asset deposited in pledge may be auctioned or sold to recover the borrowed amount.
Characteristics of the pledge credits
One of the peculiarities of this type of credits is that financial institutions usually offer them only to very select clients, with assets starting at half a million dollars. In fact, among the banks that usually offer them it is not usual for the loan to appear in its catalog as an independent product. Ibercaja does contemplate the WiseCredi Loan, for which up to 60,000 dollars can be requested that must be repaid in a maximum of eight years, within its commercial offer.
If we refer to the usual pledge that is processed in a pawnshop, the procedure is very simple. The good that is to be left as a pledge must be presumed at a certain value; afterwards, it will be assessed by the person appointed by the pawnshop. The valuation will be more advantageous for the future debtor the more demand there is for that good and in a better state. Next, the entity will inform the client about the conditions of the loan, the repayment term, the amount of the installments and the payment dates, the interest rate, when the asset may be recovered or under what circumstances. you will definitely lose. If the client accepts, a contract will be formalized and the amount borrowed will be delivered. It is a very fast and simple procedure, which allows you to obtain money almost instantly if you have a good that you can leave as a pledge.
In the case of banks, we talk about figures much higher than those usually used in pawnshops, as well as goods of a completely different nature. As we pointed out before, the pledge loans, at least not long ago, were an option that was only offered to very select clients and with a remarkable patrimony. However, it is a form of credit with more and more demand, so that the banks themselves, although they continue to negotiate this type of loans individually with each client, are expanding the possibilities of granting them even to clients with assets from 80,000 dollars.
Loans have a shorter repayment term, but the interest is also usually lower than that of a loan
With respect to pledges, banks usually have a preference for financial assets, such as deposits, stocks, shares in investment funds or insurance. However, sometimes they also accept real estate: for example, if the client owns a place that he does not use, he can pledge it in order to access advantageous financing. In turn, the costs of pledged loans are usually lower than those of a mortgage, which is why more and more clients are turning to these types of loans to acquire a property. To subscribe a pledge, some of the burdensome paperwork that you have to go through to contract a mortgage, such as appraisal, notary or registration, are not necessary. Likewise, it is not necessary to redo the deed when the pledged asset is free of cartoons, and, although it does not allow to enjoy the pledged asset during the term of the loan,
Pledge contract: example
Given that, with the exception of Ibercaja and its WiseCredi Loan, pledge loans are not usually part of the catalog of loans that entities make available to customers, it is very difficult to offer an example applicable to all cases. However, it is possible to make a small outline of the clauses that must be present in all cases as an example of a pledge contract:
- The identity of the borrower and debtor must be clearly defined.
- It will indicate what is the good that is pledged and whose usufruct is in the hands of the borrower.
- The rights and obligations of borrower and debtor will be defined. For example, the borrower must keep the good pledged in perfect condition without introducing any change; The debtor may not dispose of said asset until the loan has been repaid.
- The conditions under which the sale of the pledge will be carried out (that is, the loss of ownership by the debtor and its displacement at the hands of the borrower) will be detailed.
Is the pledge cancellation viable?
Yes, definitely. In fact, this is another advantage of this type of credit: there are no fees for repayment or cancellation of early pledge, unlike mortgages or other loans. In this way, the client can regain possession of the asset as soon as he has the means to cancel the loan, without entailing an extra burden on his economy.
In short: either on a small scale (as in pawnshops) or at more exclusive economic levels (as in the case of premier or private banking clients that have ample assets), the pre-emptive loans are an alternative form of accessing financing that can be very advantageous when goods are available to pledge.