It is likely that talking about pledge or pledge loans is somewhat unknown to us at first. However, if instead of referring to pledges we speak of endeavors, surely we are dealing with a much more familiar term. Actually, we are talking about the same thing: pledge loans and pawns are based on the loan of money in exchange for leaving a good in pledge.
The pledge or pledge credit is based on the fact that the guarantee is a good with value, whose custody passes into the hands of the lender, creditor or financial entity during the period in which the loan is in force. If the debtor defaults on his obligations to the lender, the pledged property may be auctioned or sold to recover the loan amount.
Characteristics of pledge credits
One of the peculiarities of this type of credit is that financial institutions tend to offer them only to very select clients, with assets starting at half a million dollars. In fact, among the banks that usually offer them it is not usual for pledge credit to appear in their catalog as an independent product. Ibercaja does contemplate the Lite Credit Loan, for which up to 60,000 dollars can be requested and must be repaid in a maximum of eight years, within its commercial offer.
If we refer to the usual pledge credit that is processed in a pawn shop, the procedure is very simple. The good to be pledged must be presumed to have a certain value; afterwards, it will be appraised by the person in charge designated by the pawn shop. The appraisal will be more advantageous for the future debtor the more demand there is for that asset and in better condition. Next, the entity will inform the client of the conditions of the loan, the repayment period, the amount of the installments and the payment dates, the interest rate, when the asset may be recovered or under what circumstances. will definitely lose. If the client accepts, a contract will be formalized and the amount loaned will be delivered.It is a very fast and simple procedure, which allows you to obtain money almost instantly if you have a good to be pledged.
In the case of banks, we are talking about figures much higher than those usually handled in pawn shops, as well as goods of a completely different nature. As we pointed out before, pledge loans, at least until not long ago, were an option that was only offered to very select clients with notable assets. However, it is a form of credit with increasing demand, so that the banks themselves, despite continuing to negotiate this type of loan individually with each client, are expanding the possibilities of granting them even to clients with assets from 80,000 dollars.
Unlike other financial products
such as mortgages, in which the home itself is the guarantee—, pledge loans have a shorter repayment period, but the interest is also usually less than that of a loan personal. With regard to pledges, banks often have a preference for financial assets, such as deposits, stocks, investment fund shares or insurance. However, sometimes they also accept real estate: for example, if the client owns a premises that he does not use, he can pledge it in order to access advantageous financing. In turn, the costs of pledge loans are usually lower than those of a mortgage, which is why more and more customers are turning to this type of loan to purchase a property.To subscribe a pledge, some of the burdensome procedures that you have to go through to take out a mortgage, such as appraisal, notary or registration, are not necessary. Likewise,
Pledge contract: example
Given that, with the exception of Ibercaja and its Lite Credit Loan, pledge loans are not usually part of the catalog of loans that institutions make available to clients, it is very difficult to offer an example applicable to all cases. However, it is possible to make a small outline of the clauses that must be present in all cases as an example of a pledge contract:
- The identity of the borrower and debtor must be clearly defined.
- It will be indicated which property is pledged and whose usufruct remains in the hands of the borrower.
- The rights and obligations of the borrower and debtor will be defined. For example, the borrower must keep the pledged asset in perfect condition without introducing any change; the debtor will not be able to dispose of said property until the loan has been settled.
- The conditions by which the sale of the pledge will be carried out will be detailed (that is, the loss of its ownership by the debtor and its displacement at the hands of the borrower).
Is pledge cancellation feasible?
Yes, definitely. In fact, this is another advantage of this type of credit: there are no fees for amortization or for cancellation of an early pledge, unlike mortgages or other types of loans. In this way, the client can regain possession of the asset as soon as he has the means to cancel the loan, without putting an extra burden on his economy.
Ultimately: be it on a small scale (such as in pawn shops) or at more exclusive economic levels (as in the case of premier or private banking clients with large assets), pledge loans are an alternative form to access financing that can be very advantageous when you have assets to pledge.