What is The Loan Collateral? How Collateral Against Home Loan Work?

Loans can be divided into two categories- unsecured and secured loans. Unsecured loans are the ones which do not require you to keep any collateral or security against the loan amount. Personal loans are one of the most popular examples of unsecured loans.Secured loans, on the other hand, require the borrowers to keep a security. The security can be an asset like property, gold, land, and even investments like FDs and stocks. Home loans belong to the secured loan category. Apart from home loans, there are also other types of collateral loans on the property .Let us have a detailed look at home loan collateral and what it means-

In case of secured loans which are generally big-ticket loans like home loans, the lender requires the borrowers to keep a security against the loan amount. In case if the borrower is not able to repay the loan, the lender will then have the right to liquidate the asset to recover their money.In case of home loans, if a borrower is unable to repay the home loan, the lender will have the legal right to claim ownership of the property and even sell the same for recovering their dues.

While delaying 1-2 EMIs will mostly not result in any severe consequences, the lender can initiate the recovery process if you have not paid the home loan EMIs for a considerable number of months. If the lender has reasons to believe that you will not be able to repay the home loan, they will start the legal proceedings against you and can also take the ownership of the property.In such cases, it is better to discuss your options with the lender rather than trying to avoid the lender. In case if you are suffering from a temporary financial crunch, talk about the same with your lender and they will mostly re-schedule the loan.

With the help of the collateral, the lenders are able to reduce the risk of default. In case if a borrower is not able to repay the loan, the lender can take ownership of the collateral and sell the same for recovering their dues.So, now that you know what is a collateral loan ; ensure that you have a solid repayment plan in place before taking a home loan . Never miss your loan EMIs and discuss your financial condition in case of an emergency so the lender can re-schedule the loan and not initiate any legal proceedings.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.