The real collateral is a collateral security. Here, the lender has a right to recovery. This means that if the borrower cannot pay the taken installments then the lender has the option to sell the assets in question. This can be the pledging of savings or securities. In the field of real estate financing, a mortgage is often added or a mortgage registered in the land is registered for this purpose.For example, you are taking out a loan to buy your home. The bank requires the registration of a land charge in the land register. If you cannot pay your installments for a long time the bank has the right to foreclose your property in order to use the proceeds to pay off your debts.
In the case of personal securities, it is not just the borrower who is liable but also a third person. These include guarantees and letters of support. Hereby, a third party is to blame if you cannot pay your installments. In the case of a guarantee the guarantor is liable with all the assets if the installment payments fail to materialize.
A borrower is the person who makes the loan request to get a loan approved. These may be individual persons but also spouses, partnerships or communities of heirs. A company can also take out best loans and is therefore considered a borrower. If a credit agreement is concluded then there is a creditor relationship between the borrower and the lender.If the financial circumstances of the borrower change hence they must inform the lender accordingly.
The Loan Deed is the binding basis for the Loan Agreement. In common usage the document is usually referred to as a loan or loan agreement.This basis also states that the following aspects must be part of the contract.
- Type of loan
- Loan amount
- Lending rates
- Credit costs
- Credit Term & Amortization
However, this only applies to loans granted by banks. These credit agreements also require both parties to be named and recorded with personal details. In addition, the general terms and conditions and the termination rights are to be recorded.
Conclusion: careful with contracts
For contracts with private individuals, the contract is much shorter. Only the loan amount, the notice period, the interest rate and the collateral used are to be recorded.If the contract is agreed with an employer, the loan agreement is similar. If you receive an advance from your employer at a surprisingly low interest rate then you should record the total loan amount as well as the net amount and the interest rate in the contract. Also remember to list all repayment modalities.