Collateral is any property or asset of value that is put up against a loan as security. Loans involving collaterals are called secure loans because they minimize the risk involved in lending. That is why most financial institutions provide you with competitive repayment terms on secured loans.
Just consider home finance, for example. If you need a large sum of money for purchase, you can pledge any eligible security against the loan and, in return, get the requested amount at affordable home loan interest rates.
Types of collateral
Collaterals are basically of two types –
- Immovable property
- Liquid security
Immovable property includes your house or a piece of land and liquid assets include insurance policies, government bonds, etc. The value of the collateral you’re pledging, however, must cover the cost of the loanamount disbursed by the lender. Only then can you use the property as collateral.
Not sure what type of properties you can use as collateral? Read on to learn more.
What types of properties are accepted as collateral?
1. Residential property
Any sort of residential house can be accepted as collateral by your lender. It can be a self-occupied house you are currently staying in, a rented residential property that you are using as a source of income, or a vacant residential house that you aren’t currently using. This is a popular asset among lenders as it is easy to liquidate in case of default and retains its value over time.
Additional Read: How to Manage Home Loan EMIs during a Financial Crisis
2. Commercial property
Commercial properties are yet another widely used asset in collateral-based lending, such as housing loans.This could either be a commercial property that you are renting out or a vacant property. What’s more, if you put up a vacant property as collateral, you can avail of high-value loans easily. Unfortunately, there is a catch.
They are acceptable if no residential property falls in the underlying area and must be owned by individuals having no live disputes over its ownership.
3. Property with multiple owners
You can also use any property with multiple owners to avail a loan against collateral, say a home loan. Although the condition is that the property must only be shared among family members with the following relations:
- Mother and son
- Father and son
- Parents and unmarried daughter
Properties from third parties like parents, friends, or other relatives are also accepted as collateral once they meet the minimum requirements.
4. Open lands
Open lands can be used as loan collateral as long as they have a clear demarcation on their boundaries. These lands must be non-agricultural in nature and must meet the minimum criteria for eligibility as collateral.
Additional Read: Top 5 Tips for the Self-Employed to Avail Home Loan
Turn to Tata Capital
Are you looking for affordable home finance options? At Tata Capital, we accept both residential and commercial properties as collateral. We offer secured loans on easy-to-meet home loan eligibilityterms that are completely customizable as per your financial needs. Select your tenure amount and choose the repayment option that is best for you.
Determine your loan eligibility and plan your future instalments using our home loan EMI calculator. Click here to check our housing finance schemes today.