Less known than the bond or the mortgage, the pledge is part of the guarantees that can be made to obtain a mortgage. What is the pledge of a credit? How does it work? What are the advantages over other loan guarantees? Presentation of the pledge.
Definition of collateral
The collateral is a contract between the borrower and the bank, by which the first, called debtor, pledges his property loan intangible property he owns with the second, said creditor.
These intangibles are most often life insurance, but it can also be shares, bonds or from shares In a company.
Just like the mortgage or bond, they serve as bank guarantee, which can thus automatically seize all or part of the capital pledged in the event of default by the borrower.
In addition, they allow them to determine the loan capital they are willing to lend. When the collateral is based on life insurance, it can reach up to 100% of the capital that it represents the term provided for the credit, while for shares or bonds, the bank takes into account only part of their value (between 40 and 80%).
Functioning of the collateral
In terms of duration first, the pledge begins with the implementation of the mortgage and ends at the end of the contract, ie once the loan has been repaid in full, thus taking into account any early repayments and related penalties, whether or not related to the resale of the property.
Regarding the ownership of the capital subsequently pledged, it remains in the name of the debtor and managed by the latter. However, he can not ask for any payment until his loan is fully paid.
Benefits of collateral
The pledge has the primary interest of not entailing any cost for the borrower against a mortgage or a deposit.
It also offers the advantage of potentially being able to realize an added value on loans in fine, that is to say, the borrowed capital is repaid on the date of termination of the corresponding contract.