Are you considering buying an asset, whether for personal or commercial purpose, but not in a position to raise enough cash to complete the purchase? Then, an asset finance loan could be the ideal solution to your problem. However, you should secure the loan with collateral of equivalent value in order for your loan application to get approved.
Below are a few facts you should know about the asset finance loans before you submit your application.
The Loan Does Not Affect the Credit History of Your Business
Securing the loan with valuable collateral serves to separate the payment history and credit score of your business from any transactions regarding the loan. This is due to the fact that the amount you receive from the loan is directly related to the value of your collateral. Therefore, an asset-based loan is not a preferred financial option if you are aiming at building your credit score. This is disadvantageous to your credit, especially when you faithfully pay your loan installments since the payments do not influence your business credit score.
Not All Assets Qualify For Collateral
As stated earlier, the asset finance loans requires you to provide collateral. However, not all assets can secure your loan. Banks and other lenders use specific mechanisms to validate your asset and consider a few aspects before approving it as collateral. Consequently, your collateral should be an asset that appreciates in value or has low depreciation rate and can be easily converted to liquid cash. Therefore, you can use your rental property, home, land, and vehicle to secure your loan. In contrast, electronic gadgets such as laptops and home appliances do not qualify for collateral since they have high depreciation rates.
Expect Regular Monitoring Of the Collateral
Having rigorously assessed and approved your collateral, your lender may continuously monitor the asset to ensure that it maintains its value. In addition, the lender may restrict you from heavy usage of the asset in a bid to protect it from wear and tear which can easily depreciate the asset’s value. Therefore, don’t be surprised when your lender’s agent(s) frequently visit your home or business premises to check the status of the collateral.
You Risk Losing Your Asset
You must secure the business or personal loan with something valuable, whether land, rental property, home, vehicle or business equipment or machinery. However, this exposes you to the risk of losing your asset when you are unable to fully repay the loan, whether deliberately or due to unforeseen circumstances.
Asset finance loans can help you purchase a personal or business asset, especially when facing financial hurdles. You are required to provide your lender with a valuable asset for your application to get approved. The above-outlined facts will certainly keep you informed about what to expect when you acquire the loan.