Without collateral, the banks do not issue loans. What is used as collateral depends on the type of loan. In a car loan, the car could serve as security. Anyone who wants to buy a home, gets a loan with property quickly approved as security. If the payments stay off, the property is auctioned off and the bank gets its money back in this way.
The property as security
The home can serve as security not only for a real estate loan. If no other collateral is available, then the banks like to take a property as collateral. However, one should already wonder if this step is necessary. Quickly the house comes under the hammer and the family sits in the street. It should be useful if you want to offer his property as security. A real estate loan would be the only reason for this step.
Real estate loan
The real estate loan is a long-standing affair. Not many consumers can pay their own home out of pocket. Therefore, many resort to a loan with property as collateral. This is quite appropriate, because it must be paid completely different loan amounts. A real estate loan is not given so lightly. The banks are checking exactly the financial conditions. It is ideal if partners apply for this loan together. Both must be working. Added to this is the matter of equity. Anyone who wants to buy a home should have a share capital. There are not many banks offering financing without equity. The financed property serves as collateral.
This loan with real estate as security is limited to a term of ten years. After that, the question arises whether a follow-up financing is necessary or whether the remaining amount for the purchase is immediately available. A real estate loan is characterized by low interest rates. But he is earmarked. For other wishes he can not be used.
This also applies to online banks. There are loans that are tied to the purpose. The real estate loan is one of them. But before you put too much pressure on yourself, you should think twice about whether the monthly installments can be paid. One should keep in mind that events can occur during the term which make it impossible to continue to pay the installments. A large amount of equity reduces this risk, because the loan amount is then lower.
So that in case of emergency, the family is not driven into financial ruin, a loan with real estate as collateral should necessarily be secured by a corresponding insurance. This can be a residual debt insurance, which takes over the continued payment of installments in the event of death, illness or unemployment. A life insurance is also part of the hedge.
The worst case occurs when one partner falls away through death and the other can not afford the installment alone. If the credit is well secured, then the bank does not need to collect the property as a pledge, if it comes to financial difficulties. However, all calculation examples are free, if a good credit rating is not available. Despite the property as collateral, there is no loan.