What is Collateral?

One of the terms you may notice when researching or applying for personal loans is collateral. Basically it is the borrower (you) providing asset/s (such as your home or vehicle) as security for the loan. This means that if you cannot repay the loan you risk whatever asset you have put up for collateral. However, it is important to remember that you will not need to surrender the assets unless you cannot repay the loan (unlike a pawn shop type loan).

In general, there are two types of personal loans – secured and unsecured loans. Collateral is required only for secured loans. For smaller personal loans there are many assets that can be used as collateral, such as jewelry, vehicles, real estate and much more. This will differ between lenders and it is a good idea to check with your financial institution just what they will accept as security for your loan. Most major lenders provide this information when you apply for your loan.

The main benefit of providing collateral for a secured personal loan (LINK) is that the interest rate will be lower because there is less risk to the lender. You may also find that the fees and charges for this type of loan are reduced. However, not all loans and lenders in Sweden are the same. There are loans with higher interest rates and those with lower, so it would be best to first visit couple of financial portals online to jämför ränta på blancolån before you apply for one. This is why these types of personal loans are popular in Sweden, but you must be able to make repayments to avoid risking your collateral. It is a very good idea to create a new monthly budget to ensure you will be able to comfortably afford the repayments!

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