The covered payday loan is also called real credit. It is based on the provision of equivalent values by the borrower. Banks can therefore take advantage of this collateral and exercise their lien in case of non-payment. These covered payday loans require a bad credit rating. Meaning that the borrower has a burdensome credit rating and may have debts with other banks or creditors. The lender does not have to refuse the loan application, but can resort to a covered payday loan. In most cases, this is the only way to approve the loan request at all.
Covered Payday Loan – Disadvantages
If the borrower wants to make use of a covered payday loan, he obviously needs a corresponding countervalue, which the bank can use as a pledge in case of non-payments. The disadvantage is also that the loans are issued with higher interest rates. After all, the bank forgives the loan at a higher risk.
What collateral can be provided?
Borrowers can choose from a variety of collateral for the bank. These include, for example, moving goods such as vehicles, but also jewelry with corresponding value. Also, special paintings or other works of art are used to give the bank the necessary security for the covered payday loan. The borrower remains the owner for the term of the loan. Meaning that he can still hang his precious painting in his living room. What he is forbidden, however, is the sale of the object. The bank is in this case the owner of the painting. Also, the owner can not make any donations or inherit the item in this case. For vehicles, a vehicle registration document is usually deposited.
Financial collateral is of course also accepted by the bank. So if you have life insurance, government bonds, savings bonds or shares, you can also submit them to the lending bank as collateral. Of course, real estate or land can be deposited, just as it would be the case with company shares.