Hello Mudalovers , this time we will discuss collateral assets which is one of the terms related to finance. You may have used collateral assets, but you may not know the importance of collateral assets.
In the world of finance, this term has several definitions. This time I will discuss collateral assets related to finance and others. Discussions about collateral assets usually also refer to other terms such as investment, high ratio loans, and banks.
Before discussing collateral assets, it would be better if we discuss the meaning of assets first. So that Mudalovers friends can deepen the explanation of the assets themselves.
Definition of Assets
Assets are assets, property and wealth holdings that support business operations and can be exchanged for cash. All corporate assets refer to physical or non-physical resources acquired through transactions and are the result of past activities.
Assets can also be defined as assets of a business entity in the form of rights or goods obtained by the entity through past activities or transactions, which must be measured in monetary units. The two definitions above conclude that assets are resources that can be used to carry out various activities such as Operations, Financing and Investment.
The definition of assets includes various types of assets or wealth owned by a company. This wealth may have existed from the start, or may be the result of a company’s efforts over a certain period of time. Can also be called an asset.
Because we know that everything that can be valued with money can be called an asset.
Assets, on the other hand, are usually used as a term to describe title. As a business person, you often struggle with financial reporting, so you must be familiar with this term.
It is said that a good company is a company that manages its assets well. This can be seen from how the company manages these assets to produce optimal returns.
Assets are assets that are not just stored. However, the company allowed him to work for the benefit of the company. Of course, management must be calculated and carried out carefully. One wrong step could result in the company losing its assets.
Definition of Collateral Assets
Collateral Assets, or collateral assets, are assets in the form of land, securities, or other valuables that are tied up as collateral to support the process of issuing bonds, loans, or corporate bonds. In other words, collateral assets are valuable assets used by lenders as collateral to enable borrowers to assume debt or credit.
Assets used as collateral can later reduce the burden of loan advances and subsequent payments. Assets that can be pledged as collateral can be cash, shares, bonds or other securities.
Advantages and Disadvantages of Collateral Asset Transactions
1. Secure Asset Ownership
One thing that is beneficial to someone about collateral assets is that the borrower can still retain ownership of the property used as collateral assets. That’s good news. This is because there are many types of loans that carry big risks if the borrower is unable to pay, including title deeds.
2. Avoid taxes
If you want to take out a loan and avoid tax penalties, borrowing using collateral assets may be an option. Thanks to collateral assets, borrowers can avoid tax penalties when selling assets. It is very important to consider this method.
3. Avoid large down payments
Because loan down payments are low, quite a few people use collateral assets. Collateral assets benefit borrowers by avoiding high loan interest rates. However, this applies if the lender enforces it. But don’t worry. All lenders with established procedures offer this service.
4. Low interest
Want to borrow or open a trading business with low interest rates? Try collateral assets. Another advantage of collateral assets is that borrowers can enjoy lower interest rates on mortgages and loans. That’s a good thing.
5. Continue to Get Income
Another advantage of collateral assets is that the borrower continues to earn income. However, borrowers are obliged to regularly report income from investments made.
6. Limited Securities Transactions
Although collateral assets have many advantages, they also have disadvantages. Some of the drawbacks are that they do not deter potential borrowers. Considering that the risk is not too big, quite a few still choose collateral assets. However, a large number of borrowers face this shortcoming.
One of them is the limited ability to buy and sell securities. If your investment is in stocks or mutual funds, these transactions are limited. In this case, trading will remain safe unless you invest in shares.
7. Risk of Losing Wealth
We have said that tenants can retain ownership of the property, but this does not mean that it is not a certainty. Because the borrower can still lose his assets if there is a default. Therefore, be careful when borrowing and depositing collateral assets.
8. Be careful when not paying a down payment
Collateral assets are very convenient for borrowers because they can make down payments at low interest. However, you also have to be careful. Think twice before asking for collateral because you will pay full interest on your loan if you do not make the specified down payment. So be smart when taking out a loan.
9. Lender Can Request Additional Funds
Be careful when borrowing money with collateral assets. Lenders are more likely to request additional funds if the transaction value of the collateralized security is low or decreasing. This scenario can suddenly happen anywhere at any time.
10. Relative Risk of Default
Loan collateral asset transactions have a relative risk of default. This may be due to a lack of control over the borrower’s repayment. Therefore, it is very important for lenders to allow potential borrowers to make payments.
Read Also : What is a Cash Account? Definition, Types and Criteria
Examples of assets that can be used as collateral assets for banks
Applying for a loan from a bank usually requires collateral in the form of valuable assets called collateral or collateral assets. Loan applications are usually not approved by banks if the loan amount does not meet the terms and conditions.
Loan guarantees are basically a business in the form of cash flow from the borrower’s business, but in some cases collateral assets in the form of assets are needed to further increase the bank’s credibility.
Quoting the merdeka.ojk.go.id page, this security functions as a safety device or final risk mitigation tool or is given to debtors (borrowers) whose creditors (lenders) are in arrears or those who fail to fulfill their payment obligations. What assets can be used as bank collateral?
Conditions for assets that can be used as collateral assets
- Has economic value, in the sense that it is valuable and can be exchanged for money
- Ownership can be easily transferred
- The lender has the right to realize the collateral and can legally own it outright.
Types of assets that can be used as collateral assets
Tangible collateral assets
Activation of tangible collateral itself can be divided into two parts, namely movable collateral assets and immovable collateral. Examples of mobile collateral activation are motorized vehicles such as cars, motorbikes and ships. Real estate collateral can be land, property, precious metals, factory machinery, inventory, gardening, or animal products.
Intangible collateral assets
Examples of intangible securities are patent rights, intellectual property rights, shares, bonds, deposits, etc. Returning these collateral assets is also very easy. Because collateral assets will be returned to the borrower after the loan period with the bank ends.
However, if the loan debt cannot be repaid, the collateral assets will automatically be confiscated and become the property of the bank. To avoid payment defaults (losses), please pay attention to several aspects that need to be considered when applying for credit/loans.
Income, Mortgage Loan Amount, Interest/Profit Sharing. This is to maintain a good reputation by always paying installments on time in a disciplined manner. So you need to use your credit/financial instruments wisely and use them for something productive so that your additional funds can increase your income and welfare in the future.
1. Building or Property
Buildings such as houses, apartments, factories, warehouses and hotels can be used as collateral for collateral loans, but you must ensure that the building or land has a building or construction permit when applying for collateral for this property. You can prove this with proof of building permits and that the building is in process and there are no disputes.
The value of buildings and land is usually adjusted to the condition of the asset and the perimeter of the building. If your building assets are in good condition, you can get a loan in the millions to billions over a period of 2 to 10 years.
For this reason, before you submit an application, you can first consult with your bank to get more specific information regarding the loan value that you can get from the assets you hold as collateral.
2. Soil
Land containing real estate assets can be used as collateral for loans that will be guaranteed. The increase in land prices from year to year has become a very popular collateral for borrowers with collateral assets. Of course, land is a kind of collateral that is considered and taken into account by banks.
Even if inflation rises or the rupiah depreciates, land wealth and land investment remain in demand. It is the legal guarantor of this collateral asset criteria loan.
However, you also need to ensure that the land you will use as collateral for your loan is land that already has a title certificate so that you can be legally responsible for it. In addition, you must be able to prove land ownership, such as ownership rights, use rights, or government land use rights.
Read Also : What Are Cash Equivalent Assets? Definition, Types, Objectives and Functions in the Business World
3. Factory Machines
Factory machinery is also an asset that you pledge as a secured loan, but will be analyzed to determine its value, so make sure your factory machinery is technically appropriate and in good condition.
4. Motor Vehicles and Cars
If you apply for a loan and are confused about choosing collateral, you can also provide your vehicle as collateral. Vehicles such as motorbikes and cars of various brands. Make sure you have proof of vehicle ownership as collateral for the loan.
When claiming a car under warranty, the car must not be more than 10 years old and of course must be in good condition. Apart from proof of vehicle ownership, a motor vehicle license and vehicle keys are usually also used as collateral. Because a car is not an investment and its value continues to rise, secured loans using the car as collateral usually only have a term of five years.
5. Shares
You can also post securities such as shares as collateral assets for secured loan applications. However, make sure your shares are actively traded on the Indonesian Stock Exchange (BEI) and have investment grade. Choose shares from well-known companies that are still active so that your assets will be considered by the bank in the form of the shares you own.
6. Ships and Airplanes
Ships and aircraft can also be used as collateral in credit loans with collateral assets, which are often carried out by certain business actors who need additional business capital.
Therefore, loan transactions will be very important. However, it should be noted that only ships and aircraft with a minimum total volume of 20 cubic meters and a maximum gross weight of 20 cubic meters can be used as collateral.
So, here are some good properties to use as collateral. For instant bank approval for your credit, make sure you have a good credit history, usually information on all loan transactions you make is stored in the financial information services system by the Financial Services Authority.
Make sure that the loan amount you apply for is within your means. Calculate and compare your income and expenses every month. It’s best not to let your future mortgage payments amount to more than 30% of your monthly income. Also ensure that the conditions used to apply for a loan are complete and appropriate.
7. Deposit Guarantee
Deposit guarantees are often used to apply for multipurpose loans. Some people choose deposits as collateral because they can be more efficient and optimal. However, you need to know that not all banks accept deposits as credit collateral.
Some national banks have accepted deposits as assets that can be used as collateral. However, you need to know that the deposits in question are deposits at the same bank where you are applying for credit guarantees. This will make it easier for banks to verify borrower data.
Applying for a loan with deposit collateral will provide a faster verification time, resulting in a quicker process. Apart from that, credit lines will also be easier to obtain because they are determined by the amount of savings that will be guaranteed.
Another advantage of this form of deposit guarantee is that the borrower does not need to mortgage land or real estate and the interest rate that must be paid will be lower, calculated based on credit interest minus the deposit interest rate.
However, during the credit period, deposits cannot be used or withdrawn. This is different from collateral for a house or car which can still be used by the borrower during the loan period.
8. Gold as collateral
Gold can be an asset that can be used for sharia banking. Because in ordinary banks, gold is not allowed as collateral. As an alternative, you can also use gold as collateral at a pawnshop by following the pawning system where the gold is held by the lender or bank concerned.
If you apply for a loan from a pawn company with gold collateral assets, you can get a loan worth 95% of the estimated value of the collateral you are securing starting from IDR. 1 million to 250 million Rp. Apart from that, there are now gold-guaranteed peer-to-peer lending technologies that you can register for, such as Danain.
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Conclusion
Therefore, it is necessary to review the collateral assets. This term is part of a lending and borrowing transaction, where the borrower offers a loan to the lender as collateral.
If at any time the borrower fails, the collateral assets may become the property of the lender. This method certainly has advantages and disadvantages. Therefore, it is very important for borrowers to think carefully before deciding to borrow with collateral.
Not only can it be done where you live, the guarantee can also be done online. There are many lenders who offer collateral asset services. These collateral assets may be of interest to you.
But remember, think carefully to avoid risky things. So I hope this review was helpful and added some insight into loans. So you know which method is the most convenient and least risky.